WEL Networks has agreed to sell its stake in Ultrafast Fibre as part of a strategy to increase investment in its core electricity network and new energy options.
Hamilton-based WEL and neighbouring Waipa Networks have agreed to sell their shares in UFF Holdings to Japanese institutional investor First State Investments for $854 million.
The sale, still subject to Overseas Investment Office and government change of control clearance, gives First State a broadband footprint across the central North Island. Formed to participate in the Crown-led UFB roll-out, UFF provides broadband to a potential market of more than 237,000 homes and businesses in Hamilton, Tauranga, Whanganui, New Plymouth, Tokoroa, Hawera, Cambridge and Te Awamutu.
First State, which also owns gas and LPG distributor First Gas, said UFF would remain headquartered in Hamilton.
"We look forward to supporting the strong fibre uptake the business has achieved in New Zealand's highest growth region and continuing to provide high-quality fibre infrastructure services to the community," First State infrastructure investments director Gavin Kerr said in a statement.
First State was owned until last August by the Commonwealth Bank of Australia, before being sold to Mitsubishi UFJ Trust and Banking Corp. It manages about A$228.5 billion (NZ$243b) of assets on behalf of institutional investors, pension funds and other investment platforms. It has about A$13b in unlisted infrastructure investments which include the First Gas business in New Zealand and the Quantem bulk liquid business here and in Australia.
A good investment
WEL chairman Rob Campbell said the investment in UFF had enabled the delivery of important infrastructure to the community and had also been a good investment for the company.
The sale proceeds would initially be applied to reduce bank debt, much of which went to fund construction of the UFF network.
"In time, with a strengthened balance sheet, WEL will invest in its core business of electricity distribution," Campbell told BusinessDesk. "This market is changing and there are opportunities in distributed generation, storage and other aspects of energy use.
"We will also continue to lift the efficiency and cost effectiveness of our service to households and businesses. This will include the ongoing development of OurPower."
WEL is the country's sixth largest power distributor, supplying about 94,300 homes and businesses from Hamilton to Raglan in the west and north to Huntly and Hampton Downs.
It is benefiting from strong growth across its region and added almost 1600 new power connections in the year through March, according to Electricity Authority data.
Focus on trimming energy supply costs
In recent years it has focused on lowering the cost of energy supply to its consumers. It started the OurPower retail business in 2017, which now has almost 1600 customers and in March it sought a partner to host a solar farm on up to two hectares of land. It wanted that built this year.
Campbell wouldn't disclose the gain the two network companies have made on the sale. Sale terms include $200m of WEL's share of the proceeds being deferred for 18 months.
WEL owns 85 per cent of 10-year-old UFF. The venture participated in the 2012 Crown UFB roll-out and was subsequently awarded additional contracts to connect more communities in Taranaki, Waikato and the Bay of Plenty.
In 2016, WEL bought out the Crown's interest in the partnership, but the Government retained a right of approval over any planned change of control in the business.
In February, UFF completed the connection of 27 smaller communities to its network under the Government's UFB2 and UFB2-plus programmes.
In WEL's March 2019 accounts, the latest available, the fibre business had total assets of $599.1m and term liabilities of $543.1.
It provided about $67m of WEL's $210.6m of group revenue that year and contributed about $39.6m in earnings before interest, tax, depreciation and amortisation to the group total of $115m.