Origin Energy is entering a deal to sell 53% stake of its New Zealand subsidiary Contact Energy for approximately US$3.06 ($4.65 NZD) per share in an attempt to reduce the company’s debt and costs.
Image of BassGas. From Origin.
The underwriting agreement is expected to net Origin about $1.18 billion ($1.8 billion NZD), and will be used to repay debt, redeem $131 million ($200 million NZD) of redeemable preference shares issued by Origin Energy Contact Finance No.2 Ltd., and provide increased financial flexibility in the short to medium term. The sale will be conducted via a bookbuild process while Contact shares are in trading halt. The settlement for the transaction is expected on 10 August.
“Today’s announcement is consistent with Origin’s stated intention to continue to take action to reduce operating and capital costs, realign debt across group entities, and, where appropriate, divest assets,” Grant King, Origin managing director said.
Upon completion of the sale, Origin expects that its credit rating from Standard & Poor’s will remain unchanged at BBB- (stable) while the credit rating from Moody’s will be revised from Baa2 (negative outlook) to Baa3 (stable), reflecting their view of a reduction in earnings diversity. Contact’s earnings have been consolidated into Origin’s accounts, and Origin’s access to Contact’s cash flow has been limited to 53.09% of dividends, the company said.
Origin will continue to hold upstream production and exploration interests in New Zealand after the sale of Contact.
The company’s production volume increased 15% in 2Q 2015, compared to 1Q 2015 from contribution from Australian projects: APLNG, BassGas, Cooper and Otway. Origin also saw a 9% jump in its revenue this quarter, compared to 1Q 2015 due to higher production and sales of third party volumes.
Last week, Origin successfully tied in the Yolla-6 development well to export facilities on the Yolla platform, bringing the well into production at the BassGas project offshore Australia.