State assets in line for ratings revamp

Credit profiles for power gentailers like Meridian could change if the Government's plans go ahead. Photo / Simon Baker

Standard & Poor's says the business and financial risk profiles of state-owned energy companies earmarked for partial sale could be affected if the plan goes ahead.

The ratings agency says the sale plan is one of two key unknowns facing big utility companies in New Zealand, the other being uncertainty in price-regulated industries.

If re-elected a National government plans to sell up to 49 per cent of Meridian, Genesis, Mighty River, Solid Energy and Air New Zealand but says New Zealanders will be at the front of the queue for shares.

S&P says stand-alone credit profiles for the power gentailers could be affected. "Should this proposal eventuate, our initial focus is likely to be on the outcome of the scoping studies [being done] by Treasury."

The studies would cover any recommended restructuring of the businesses. "However, at this stage, we are assuming that the affected state-owned entities would be sold in their current form, with no material restructuring taking place."

Any recommendations from the scoping studies would need to be reviewed on "their respective merits". The ultimate ownership composition of affected firms was likely to influence the agency's view of their overall business and financial risk strategies.

Although the companies would still play a crucial role in the local economy, their stand-alone credit profiles (SACP) could change because of the planned sales, which could take up to five years to complete.

"Under our government-related entities criteria, the deterioration in the SACP will affect the issuer credit ratings of these entities, in tandem with the potential revision to the SACP," the agency said.

Delays in resetting prices in the electricity and gas sector - affecting lines and transmission companies - were also contributing to uncertainty. Prolonged court action could also present "limited risks" to rated regulated utilities in the short term.

S&P said that despite the potential risks, it took limited rating actions during the six months to the end of September although Auckland Council was put on CreditWatch negative this week after potentially higher debt at the parent.

"We expect the credit quality of rated New Zealand utilities to remain steady in the near term."