Contact Energy's majority shareholder, Origin Energy, says its investment in the local power company "continues to form a key part of our Australasian energy markets business" amid speculation among New Zealand investors that this month's 50 cents-per-share special dividend signals potential exit from the stake Origin has built up since 2003.
Contact fell 8.4 percent to $5.57 yesterday as the shares went ex dividend ahead of the $367 million June 23 payout, which will largely exhaust available imputation credits in the company's accounts. The payment has fuelled speculation about Origin's intentions since presentations last month in which the debt-burdened operator's managing director, Grant King, signalled Origin was looking to divest assets to improve its balance sheet flexibility.
In cautiously worded commentary published yesterday, Craig Stent at Wellington funds manager Harbour Asset Management said the special dividend move has been read by "some investors" as meaning "the shareholding structure of the company may be up for review."
"At a stretch, that could mean that majority shareholder Origin is readying the business for sale," Stent wrote. "Most likely it could just mean a financially prudent move (by) the management team. However, in a recent presentation to investors in Sydney, Origin's CEO highlighted that with a sustained period of low oil prices, the company had less balance sheet flexibility" and "placed on the table various actions, including divesting assets."
That could include Origin's 50 percent holding in the Kupe oil and gas field or other assets in Australia, but it could also include the Contact stake.
Currently, Origin owns 53.1 percent of Contact, having bought the cornerstone shareholding of American investor Edison Mission Energy in 2003 and made a failed attempt to merge Contact and Origin in 2006.
Origin is heavily committed to the approximately A$25 billion Australia Pacific liquefied natural gas project in Queensland, which is close to completion but has been hit by cost blow-outs, along with the fall in global prices for oil, meaning "capital management remains a focus," King told Australian and international investors in roadshow presentations last month.
While liquidity and debt servicing were "well in hand", it was "flexibility that is challenged in a period of sustained low oil price," he said.
Contact announced on May 25 that it would return capital to shareholders rather than pursue international geothermal energy projects with the substantial free cash flows the company anticipates over the next four to five years, in the absence of substantial capital expenditure requirements in New Zealand.
The mid-February announcement that Contact might use funds to invest offshore was poorly received by institutional investors, who sold the shares down from above $7 in early February to a low of $5.52 in early May. The share price rocketed to $6.20 on May 28 following the capital return announcement.
In answer to inquiries from BusinessDesk last week, an Origin spokesman said: "(The) short answer is our investment in Contact continues to form a key part of our Australasian energy markets business."
He offered at the time to add detail to that comment, but had not responded with that additional detail at time of publication.