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UnitedNetworks 12th largest listed firm after $550m deal

By Chris Hutching

Friday 24th March 2000

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Christchurch City Council delighted ratepayers this week when it announced a $550 million windfall - a day after proposing a rates increase of 2.3%.

The $550 million paid by UnitedNetworks for the council-owned Orion gas network in the North Island "exceeded expectations" and put the lie to recent local reports that the bidding was around the $270 million range.

The deal positions UnitedNetworks, formerly Power New Zealand, as the 12th largest listed company with 485,000 North Island electricity customers and 117,000 gas customers.

Meanwhile, the zeal of spendthrift Christchurch city councillors keen to promote dubious job-creating ventures may be tempered by the arm's-length relationship with Orion's directors who will negotiate in coming months about how much of the money will be repatriated to the council, reinvested or used to reduce Orion's debt of $270 million.

The Orion gas assets were the legacy of its investment in the formerly listed Enerco gas company. The retail operations were sold last year and the gas network tendered a couple of months ago. On completion of the gas network sale, Orion will retain its electricity lines network in Canterbury valued at around $500 million. Its stake in a gas exploration venture at Wairoa is under review and a property at the Auckland Viaduct Basin will be sold.

Orion chairman Linda Constable said the capital should be protected for reinvestment to replace the lost dividend income from the gas network, which accounted for about a third of the annual dividend from Orion.

Council financial controller Bob Lineham agreed about $300 million might be needed for reinvestment to replace the $15 million-odd in dividends from the gas operations, which he said helped keep down rates in Christchurch. Whether the reinvestment would be via Orion or some other vehicle was yet to be decided.

It will take several months to seek a binding ruling from the Inland Revenue Department about the repatriation of the money. A ruling is still awaited over the repatriation to the city council of $70 million, part of the total $171 million obtained from the sale of Orion's retail electricity customer base about a year ago (the balance was used to reduce Orion debt). Last week the Orion directors were also concluding the sale of 5% of the Southdown generation plant to existing shareholders for $8.5 million.

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