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BEL could force Pulse receivership


Thursday 28th July 2011

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Buller Electricity (BEL) will call in its loans to Pulse Utilities, forcing the cut-price electricity retailer into receivership, if Pulse rejects a rescue deal to recapitalise the company.

Pulse shareholders will vote on the deal on August 18.

"In the event that those resolutions don’t pass we have a receivership strategy,” said BEL chief executive Erik Westergaard. "The options for us are either approval by the shareholders, or receivership."

If Pulse went into receivership, BEL would lose its original investment of $1.215 million, Westergaard said. The most BEL could lose was $7.335m.

BEL could sustain those losses without reducing its operations or increasing its charges, he said.

He revealed BEL had also loaned Pulse almost $3m since Christmas. All the loans were on call so BEL could demand repayment at any time.

BEL had first ranking security over Pulse’s assets of more than $7m, so if Pulse went bust BEL would get the loan money back, he said.

Westergaard, BEL chairman Frank Dooley and chief financial officer Peter Best spent three hours with The News yesterday answering questions on the controversial Pulse deal.

They said BEL had first considered forcing Pulse into receivership in March, after Pulse defaulted on a short-term $750,000 BEL loan.

Pulse had paid back only $165,000 by the February 28 deadline and is now incurring penalty interest of 20 percent.

Instead of pulling the plug, BEL sought expert external advice and decided rescuing Pulse would benefit Buller electricity consumers more.

"There’s a huge opportunity here," said Westergaard. "We understand the electricity industry well. We have a very strong balance sheet. It enables us to make these commitments to Pulse going forward and we are expecting superior returns from our investment in Pulse….

"We’re trying to create an opportunity for the organisation far greater than just sitting here being a shopkeeper...

"We want control of Pulse. We don’t have it -- we have 8 percent of the shareholding at the moment. We want no less than 65 percent."

BEL’s bailout includes investing another $5m cash in Pulse and increasing BEL’s guarantee to Pulse from $2.8m to $9m. The guarantee allows Pulse to buy electricity on the wholesale market without making a deposit first. It does not require BEL to put any cash upfront.

Westergaard said if the Pulse deal went through next month it would immediately benefit BEL and local consumers. BEL would receive 54m Pulse shares as a guarantee fee. Pulse shares which cost BEL five cents could be worth up to 10c .

He expected Pulse would be in profit by 2013 and could be worth $100m within five years if it met its performance targets. He said Pulse’s break even mark was 35,000 customers. It was already close to 28,000.

"If they have 35,000 customers there’s no way they can’t be making a profit."

With 65 percent ownership, BEL could choose to start selling off its shares to 51 percent when Pulse started hitting the mark, Westergaard said. "I’m not saying we’ll do that, but it’s an option."

In the meantime, BEL would plough no more money into Pulse ahead of the August 18 shareholder vote. Pulse made a $7.55m loss for the 2010/2011 financial year. It has racked up losses of $31m -- almost half of that in the last two years -- since it was formed in 2000.

Pulse managing director Dene Biddlecombe said the company now had 1037 Buller customers compared to 771 in February – a gain of about 53 a month.

Pulse’s target was to have 100 percent of Buller customers, he said.

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