AMP unfazed by Powerco debt ahead of deal

Power companies have become a preferred investment, Jason Krupp and Hamish McNicol write. While regulation is often regarded as an anathema to investors, it is exactly what AMP Capital was looking for when it signed a $525 million deal to buy Powerco, the second biggest electricity and gas distributor in the country.

The agreement will see the investment arm of the dual-listed wealth manager acquire a 42 per cent stake in the firm from Canadian investor Brookfield Infrastructure, which has sought to exit the investment for almost a year.

Michael Cummings, who manages AMP Capital’s infrastructure equity fund, said the regulated electricity space was appealing because it allowed the firm to diversify geographically while still accessing steady earnings from Powerco’s monopolistic position.

‘‘We see regulated energy on a global basis as a good place for us to invest,’’ Cummings said. ‘‘It is all about risk and return, and regulation caps that, on the upside and the downside.’’

With 323,000 electricity and 103,000 gas customers, Powerco certainly fits that bill, generating $398m in revenue for the year ending March 31, and a trading profit of $127m.

But it also comes with a hefty share of baggage.

The firm has debts of $1.76 billion on its books, and the $163m paid in interest resulted in a bottom line loss of $5.9m. Of the total debt, $682m of that is owed to shareholders Brookfield and the Queensland Investment Corporation.

However, AMP Capital is unfazed by the financials, with Cummings emphasising that the firm has a reputation for investing in New Zealand companies for the long term.

The investment firm is also sizing up the possibility of other acquisitions in the energy distribution space.

Cummings, who has previously been the chief executive of Vector’s gas business and Brookfield, said with 28 lines companies across New Zealand, the sector was ripe for consolidation. ‘‘We’re excited about these businesses,’’ he said. ‘‘What we’re looking for are economies of scale.’’

The deal is contingent on Overseas Investment Office approval, which is expected before the end of the year. AMP shares rose 0.6 per cent on the NZX yesterday to $4.96, and gained 0.1 per cent to A$4.235 on the ASX.

Wairarapa could soon be home to New Zealand’s largest wind farm after Genesis Energy was granted resource consent to increase the size of its controversial mega-wind farm.

It has approval to build up to 286 turbines in the region at a cost of more than $1.6 billion.

Consents for Genesis’s proposed Castle Hill wind farm were confirmed by the Environment Court yesterday, after appeals were lodged against the original consents granted in June last year for 267 turbines. It had originally applied to build 286 turbines, which has now been approved. The proposed wind farm would have the capacity to generate about 860 megawatts of power.