Trustpower flags write-down on generation assets as price expectations fall
By Paul McBeth
Feb. 11 (BusinessDesk) - Trustpower says it might have to write down the value of its generation assets by as much as $170 million after revising its view on future electricity prices.
A draft independent valuation indicates the Tauranga-based electricity retailer-generator will have to cut the value of its generation assets to $1.85-1.9 billion from about $2.02 billion from March 31, it said.
The adjustment will largely be on the balance sheet, hitting the company's equity, but chief financial officer Kevin Palmer said it won't affect Trustpower's profit.
"This revaluation has arisen primarily from a revised view of future electricity prices," Palmer said in a statement to the NZX. "Generation volumes forecast have remained substantially unchanged."
Trustpower has been a beneficiary of favourable weather, where its hydro schemes were flush at a time when the national average hydro storage was below average and the Pohokura gas field outage drove up wholesale prices. It expects to report earnings before interest, tax, depreciation, amortisation and changes in financial instruments of $215-235 million for the year ending March.
In November, the company warned 2019 could be a dry year, and while supply and demand in the electricity market had moved into balance, the potential for greater price volatility wasn't reflected in retail prices.
Separately, Trustpower launched a 10-year bond offer to raise up to $100 million with a five-year rate reset. The offer is for $75 million with over-subscriptions of up to $25 million.
The 2029 notes will be sold at an indicative margin of 1.9-2.05 percent. At today's five-year swap rate of 1.93 percent, that implies an interest rate of 3.83-3.98 percent. After five years, the rate will be reset at either 3.95 percent or the issue margin plus the base rate, whichever is the higher.
The funds will be used for general corporate purposes, including repaying bank debt. The bonds will extend Trustpower's average debt maturity to 3.3 years from 2.2 years.
It forecasts net debt of $505-535 million as at March 31, up from $469.7 million a year earlier, though down from $660.8 million in March 2017. Trustpower expects to have undrawn committed funds of $150-180 million, assuming it raises $75 million from the bond offer and uses all of the funds to repay bank debt.
Trustpower paid a special dividend of 25 cents per share, or $78.2 million, in its first-half result in November, and signalled it could pay another in 2019.
The shares last traded at $6.29, and have gained 22 percent over the past 12 months.