KEY POINTS:
Vector will be able to go shopping once it sells its Wellington lines network, but there's no obvious target on the list, shareholders have been told.
At a special meeting called to approve the $785 million sale to Hong Kong's Cheung Kong Infrastructure Holdings, shareholders were also told the powerlines network was not considered to be a strategic asset, since it did not include sensitive land.
This should mean that Government approval of the sale will not be a problem for Vector.
The Auckland Energy Consumer Trust, which owns 75.1 per cent of Vector shares, had already said it would vote in favour of the deal, making the result of today's vote a foregone conclusion. The final count, released to the Stock Exchange, shows a 99.83 per cent yes vote.
Company chief executive Simon Mackenzie told the meeting that proceeds from the sale will be used mainly to retire debt.
But debt reduction was "not a key motivating factor for the sale of the Wellington network," he said.
"Prior to the transaction, Vector's gearing, as measured by debt to total book value of assets was 62 per cent which is entirely consistent with infrastructure companies of our size and nature."
After retiring some debt with the proceeds of the Wellington sale, total gearing will fall to around 50 per cent, said Mackenzie.
"There has been a degree of market speculation regarding what Vector intends to do with the sale proceeds. I can confirm that Vector currently has no acquisition plans but it will continue to pursue current business projects that have previously been announced to the market.
The board believes that as a result of current market conditions there may be opportunities that would not have previously been expected to become available. With our robust balance sheet and strong credit rating, we believe that Vector will be ideally positioned to consider any such opportunities should they eventuate."
Mackenzie also used his speech to say why the Wellington network was being sold.
In August last year, the company had received "a number of
approaches expressing an interest in the Wellington Electricity Network" so hired investment bankers Goldman Sachs JBWere to review its
options.
The average age of the Wellington electricity assets is 32 years - significantly higher than the 24 years average age of Vector's Auckland electricity networks.
This means that the maintenance and capital expenditure needed for the Wellington network would be different from that required in Auckland.
Vector also looked at network growth in the Wellington region, where it had averaged 1.2 per cent per annum over the last five years, largely driven by new commercial buildings, rather than residential customer and population growth.
Over this same period, Vector's Auckland electricity networks have averaged more than 4.1 per cent annual demand growth over the past five years.
"Following our review and analysis we determined that a sale of the Wellington electricity network to CKI at a price of $785 million provided the best outcome to Vector and its shareholders."
The $785 million price implies an earnings multiple of 9.8 times, higher than the market value put on Vector of 7.9 times earnings.
Vector will record approximately a $195 million gain on sale following the completion of the transaction.
The sale to CKI is conditional on getting approval from the Overseas Investment Office. Mackenzie said this decision was not expected until at least late this month.
"Some commentators have questioned whether or not the Wellington network is a strategic asset.
The board have received independent advice that the Wellington network is not a strategic asset in that it is not sited on sensitive land, or subject to any other unusual claims."
CHEUNG KONG GROUP
- Spans 56 countries, with about 260,000 employees.
- Includes Cheung Kong Infrastructure and Hutchison Whampoa.
- Interests include property, hotels, telecommunications and ports
THE DEAL
- Cheung Kong Infrastructure has agreed to pay $785m for Vector's Wellington network.
- This consists of powerlines, poles and some substations, which sit on a small amount of land.
- The Wellington distribution network supplies electricity to Wellington City, Porirua and Hutt Valley, with a system length of over 4592km serving 162,075 connections.
- NZ HERALD STAFF
