Wellington Electricity extends unbroken run of losses under Hong Kong ownership

Monday 27th March 2017

Wellington Electricity Distribution Network has extended its run of losses since the utility was acquired by Hong Kong billionaire Li Ka-shing in 2008, although the 2016 result was the smallest loss to date.

The company reported a loss of $1.9 million in calendar 2016, down from a loss of $3.9 million a year earlier, the Wellington-based company's annual accounts show. Sales climbed to $180 million from $174 million but earnings were wiped out by depreciation on its distribution lines and interest payments on some $733 million of debt.

The capital city's electricity distribution company has been something of a hot potato since Wellington City Council transformed its Municipal Electricity Department into Capital Power and the Hutt Valley Electric Power Board was turned into Energy Direct in 1993. They were acquired and merged by Canada's TransAlta in 1996, which transformed into United Networks in 1998, only to be acquired by what was then Vector in 2003.

In July 2008, Cheung Kong Infrastructure Holdings Ltd and Hong Kong Electric Holdings acquired the network and created Wellington Electricity, recording a loss for the 2008 year of $4.7 million. The losses peaked in 2011 and 2012 at around $19 million.

Interest costs in 2016 were $48.1 million compared with $49.9 million in 2015, the accounts show. As at Dec. 31 it had current borrowings of about $209 million, mainly made up of a $200 million bank facility that matures in September and is expected to be refinanced into a similar facility with a later maturity date. Non-current debt included about $117 million of bank debt, US senior notes of $173 million and a $235 million loan from a related party, International Infrastructure Services. The average effective interest rate fell to 5.36 percent from 5.64 percent.

The 2016 results included a $29 million depreciation charge against its distribution system, up from $28.5 million in 2015.

Wellington Electricity didn't identify any contingent assets as at Dec. 31 although it did disclose a contingent liability, which is an audit of the group by the Inland Revenue Department. At balance date, there were no known provisions or liabilities arising from the audit and the company believed it had adequately assessed and provided for its tax positions.

Cheung Kong became part of Hong Kong-listed CK Hutchison when Li Ka-shing reorganised his business interests and spun off his property interests. CK Hutchison beat analyst estimates in 2016, posting a 6 percent gain in net income of HK$33 billion as sales fell 6 percent to HK$373 billion.

Li said at the time that uncertainties in 2017 included market volatility, political and regulatory uncertainty and technological change, while there was also uncertainty about the impact of Brexit, the ability of the Trump administration to enact its policies and elections in Europe. Hutchison's business empire spans European mobile networks under 3 Group Europe, mobile phone companies in Asia and Australia, and ports, retailing, rail, electricity, gas and water utilities.

Wellington Electricity’s lines network delivers electricity to about 160,000 homes and businesses throughout Wellington, Porirua and the Hutt Valley areas.

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