Origin Energy is rushing to complete a $2.3 billion issue to refinance some of the debt used in its recent acquisition of NSW electricity assets.
The issue, announced yesterday, seems timed to try and get much of the purchase locked away and the shares issued before the state election on March 26.
Proceeds from the share sale "will be applied to refinance part of the debt used to fund the $3.26 billion acquisition of the Integral Energy and Country Energy retail businesses and the Eraring GenTrader arrangements", Origin said in yesterday’s statement.
Eraring Energy operates a coal-fired power station near Newcastle, and the Shoalhaven hydro-electric power scheme south of Sydney.
The one for five issue is at the steeply discounted price of $13 a share, 17% below the last price of $15.66.
Trading in the shares was suspended yesterday to allow the institutional part of the issue to happen.
To sweeten the offer, Origin said the shares will rank for the final dividend for the June 30 year.
The company also upgraded its 2011 profit outlook, just a month after downgrading it.
Origin reinstated its original full-year underlying profit guidance of about 15% growth, having lowered it last month to 10%-15%, with the range depending on the timing and size of the equity raising.
(In other words, the sooner the issue was done, the higher the chance that earnings would not be impacted.)
But it seems it’s the looming NSW election that was the big driver of the issue and its shortened terms.
The Liberal National Party coalition is odds on to win the poll and has said in the past it is unhappy with the sale of the assets and Origin wants to forestall the chances of the new government trying to unpick the sale (which happened as of March 1).
The company’s announcement yesterday of an accelerated tradeable offer appears to be a renounceable rights issue with a significant change.
That change has shortened the effective date of the issue so that shareholders as of March 18 (this Friday) will be entitled to participate in a discounted issue or trade these rights.
Normally the cut-off for such issues is three weeks to a month.
The process is already underway with the institutional issue starting yesterday and ending tonight, our time. The shortfall will be sold tomorrow and rights trading will start on Friday and continue for 14 days, taking it up to and past the March 26 poll.
That will make untangling the ownership of the shares next to impossible, thereby constraining the ability of the new government to unpick the power asset sale to Origin.
Origin said the issue will be "conducted via a new equity raising structure, a Pro rata Accelerated Institutional, Tradeable Retail Entitlement Offer (“PAITREO”), developed by Merrill Lynch, in consultation with Origin.
"The PAITREO structure comprises an accelerated institutional entitlement offer and a retail entitlement offer that includes the ability to trade retail entitlements on ASX."
In the statement Origin chairman Kevin McCann said, "The Board is pleased to be implementing a structure that enables eligible retail shareholders to trade Entitlements on ASX for 14 days commencing on the trading day immediately after the bookbuild for the institutional entitlement offer.
“This is the first time that eligible retail shareholders may receive upfront liquidity for their Entitlement in an accelerated entitlement offer.
“In addition, those eligible retail shareholders who do not sell or take up their Entitlement may still receive value for their Entitlement via a shortfall bookbuild after the retail entitlement offer closes,” Mr McCann said.
The Entitlement Offer is fully underwritten by J.P. Morgan Australia, Macquarie Capital Advisers and Merrill Lynch International (Australia).
Despite the size of this raising, Origin will have to come back to the market, either to shareholders or via a bond issue. That could be by the end of 2011 to build the first stage of Origin and Conoco’s $35 billion coal seam gas LNG project in Queensland.
Both companies are looking for final investment approval later this year.
