insto - Australian financial markets

The A$3.26 billion bid for Arrow Energy from joint bidders Royal Dutch Shell and PetroChina has kicked off the much-anticipated M&A action in Australia’s LNG and coal bed methane (CBM) sector.
Arrow holds the largest CBM acreage in Australia and is an attractive target for oil firms attempting to position themselves away from conventional energy sources. Shell has had a relationship with Arrow for several years, taking a 30 percent stake in the company’s CBM assets in 2008 and a 10 percent interest in its international operations.

While many companies are reluctant to admit their potential greenhouse gas costs, the number of institutional investors seeking this information has spiked, repots Bernard Kellerman.

The Carbon Disclosure Project has evolved as the pre-eminent mechanism for communication between companies and investors on climate change and carbon exposure issues. It has been run globally for 7 years, but for the fourth year has been expanded to cover the top 200 Australian and top 50 New Zealand companies.

Current role: Head of energy and utilities research, Deutsche Bank Australia & New Zealand

Hirjee joined Deutsche Bank in June 1998 from Credit Suisse First Boston where he was the senior energy analyst for three years. He is currently DB’s senior Australian energy and utilities analyst. In the 2003 Greenwich Associates survey, Hirjee was rated as one of the top two Australian energy analysts.

Best call?
Early identification of Woodside Petroleum as the best leverage to the globalisation of Australian gas via LNG several years ago, when the trend was not mainstream.

Worst call?

The focus on public sector infrastructure asset financing continues apace, with the NSW government announcing the sale of the retail operations of Energy Australia, Country Energy and Integral Energy; the long-term lease of the generation trading rights of Macquarie Generation, Delta Electricity and Eraring Energy; as well as the sale of seven power station development sites.

The transaction structure consists of a phased trade sale with an option for an initial public offering of a business combining Integral Energy's retail business, the long-term lease of Eraring Energy's generation trading rights, and a development site at Bamarang. Trade sale bidders will have the option to provide binding offers for individual assets or a combination. The government expects to complete the restructure by end-June 2010.

Fitch Ratings analysts doubted whether investor appetite will be as strong as for previous privatisations in other Australian states. In addition, the availability of credit finance is weaker than in 2007 when Queensland divested its energy retail businesses - the last similar transaction in Australia.

M&A intelligence provider mergermarket reports that WA’s state owned energy asset, Western Power, is a logical sale candidate, and could be valued at US$3.1bn, while retailers Verve and Synergy could look at re-merging.

Western Australia could see more privatisation of state-owned energy assets, sources familiar with the situation told mergermarket.

The remaining state-owned energy assets are electricity distributor Western Power, electricity retailer Synergy Energy, power generator Verve Energy and regional power supplier Horizon Power. These were created following the split, in 2006, of the then Western Power into four separate companies.

New Zealand energy company, Contact Energy will issue NZ$300 million of domestic (NZ) retail bonds, with the ability to accept unlimited oversubscriptions.

***Contact Energy to sell NZ retail bonds (2 March 2009)***

New Zealand energy company, Contact Energy will issue NZ$300 million of domestic (NZ) retail bonds, with the ability to accept unlimited oversubscriptions.

Contact’s bond offer opens on 2 March and closes on 31 March. The bonds have a maturity date of 15 May 2014 and will pay a coupon of 8.00 per cent.

Joint lead managers are First NZ Capital Securities, ABN AMRO NZ, ANZ and Forsyth Barr. Westpac is a co-manager on the transaction.