KEY POINTS:
Contact Energy's majority Australian owner is expected to slowly increase its stake in a scheme where dividends will be replaced with bonus shares.
Contact yesterday announced a 31 per cent fall in half-year underlying earnings after tax to $79.9 million, and is looking to retain cash in the
business to help fund new power stations.
The twice-a-year profit distribution scheme will allow all shareholders, not just those with 5000 shares or fewer, to forgo a dividend in favour of shares if they wish.
Forsyth Barr analyst Andrew Harvey-Green said this would allow Origin Energy to build up its stake.
"My expectation is that they will look to take up the shares and you will see their shareholding creep up gradually over time. Origin has tried a takeover in the past and they'd probably be happy to take up more shares," he said.
However, the rate at which Origin could increase its stake from just over 50 per cent would depend on how many other large shareholders would opt to take bonus shares instead of dividends.
The profit distribution scheme is similar to that announced by SkyCity Entertainment this week.
Contact also said it had been developing various alternatives aimed at increasing its available funding, including arranging new bank debt facilities, and it is joining a growing number of utility companies with a bond issue.
Contact will issue up to $300 million in bonds with terms of the issue to be announced next week.
The company is already spending more than $500 million on gas-fired and geothermal generation and gas storage and has even more costly investment plans for two wind farms although these are likely to be delayed.
Contact chief executive David Baldwin said performance had been hit by extreme weather and interisland transmission constraints.
The company's historic advantage of a mix of generation in both islands had been nullified by drought in the South Island and the loss of pole one of the HVDC inter-island link. During the first quarter of the period low lake levels meant its South Island generation was limited to about 80 per cent of South Island demand.
Contact was required to buy power from the wholesale market at an average price that was around 250 per cent of the average purchase price during the prior corresponding period - when two poles were in operation.
But the average price Contact received for its North Island generation in the first quarter of the current financial year was just 65 per cent of the cost of South Island electricity purchases, Baldwin said.
Towards the end of 2008, the winter drought conditions had reversed with some of the highest recorded inflows into the South Island's hydro lakes.
In addition to the deluge, the removal of around 180MW of electricity demand followed the closure of an aluminium production line at Tiwai Point in November.
Contact shares closed down 25c at $5.80, its lowest level in the past year after reaching $10.15 last April.