SPAusNet – BT

SP AusNet drops plan to buy Alinta assets

Higher cost of funding would hit its ability to meet forecasts

THE credit market turmoil has claimed another victim. Singapore Power’s plan to offload its A$8.3 billion (S$10.5 billion) Alinta acquisition to listed SP AusNet is now off as it has become too expensive and could affect the latter’s cashflow and distribution to unitholders.

Singapore Power chief financial officer Yap Chee Keong said the energy company will explore all options for Alinta and will proceed with a refinancing plan.

After the announcement that the deal was off, SP AusNet shareholders who had been scheduled to vote on the deal today cheered, and the security yesterday shot up 5.34 per cent or eight cents to $1.58. SP AusNet, listed in Australia and Singapore since Dec 2005, is 51 per cent owned by Singapore Power. In Australia, SP AusNet surged a bigger 8.4 per cent to A$1.285 from its Friday close of A$1.19. The SP AusNet board said in a statement said that ongoing deterioration in the debt and equity markets would have affected its ability to achieve the forecasts if it decided to go ahead with the transaction, which was at the same price as Singapore Power paid in August.

If the deal had gone through, SP AusNet would have become Australia’s largest energy and infrastructure group. But the higher cost of funding would have hit SP AusNet profits and its cashflow, which could affect the distribution of dividends to unitholders.

Analysts had also raised concerns about SP AusNet buying Alinta assets, given the high price that was paid by the then consortium of Singapore Power and investment firm Babcock & Brown. The consortium had to fend off a Macquarie Bank rival bid with an offer of about A$15.46 a share, which was 43 per cent above the average price of the stock prior to the Jan 9 announcement of a buyout proposal.

In yesterday’s statement, SP AusNet said: ‘The board has noted the ongoing deterioration in capital markets, in particular debt capital markets, since the Explanatory Memorandum was released. Current conditions would have a material impact on the overall transaction metrics, as well as SP AusNet’s ability to achieve the forecasts provided in the Explanatory Memorandum.’

SP AusNet chairman Ng Kee Choe said: ‘The management team has spent considerable time with our existing and potential new securityholders since the release of the Explanatory Memorandum in November and the board acknowledges that investors have had mixed views on the proposed acquisition.’

A SP AusNet spokeswoman told BT that since the end of October funding cost has risen 60-80 basis points, or 0.6 to 0.8 per cent. ‘In addition, the volatility in the equity market would have meant we would have had to issue at a lower price,’ she said.

The board had promised that a rights issue to help pay for Alinta would not be below A$1.10 per unit.

The plan was for SP AusNet to borrow A$5 billion-A$5.3 billion from the debt market and have a rights issue of around A$3 billion. Singapore Power would have subscribed for its 51 per cent entitlement.

‘Obviously, we are disappointed with this outcome. However, the strong fundamentals of our existing business position us well for future growth and we aim to continue to provide a stable and sustainable investment for securityholders today and into the future,’ Mr Ng said.

Ian Renard, chairman of the independent directors’ committee, said: ‘While the decision to not proceed was a difficult one, it reflects an open, rigorous and transparent process.’

SP AusNet yesterday maintained its 2007-08 full year distribution guidance of 11.55 Australian cents. It said the 2008-09 forecast of 11.80 Australian cents remains applicable.

Costs incurred on the transaction, estimated at A$26 million, will be expensed to the profit and loss in the 2007-08 full year financial statements.

Singapore Power said in a separate statement that for the time being it will manage the Alinta assets as a separate entity and will continue to work closely with SP AusNet to achieve synergies and explore growth opportunities.

Mr Yap said SP is not in a rush to sell Alinta and ‘will explore all options to maximise shareholder value’. He added that SP, whose credit is rated as AA, is able to access the capital market and will now proceed with a refinancing plan. ‘Investors are still willing to invest in companies of high quality,’ said Mr Yap.

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