SP AusNet, an Australian energy distributor 51 percent owned by Singapore Power Ltd., scrapped plans to buy A$8.3 billion ($7.3 billion) of assets from its parent amid investor opposition to the deal.
The shareholder meeting scheduled for tomorrow to vote on the acquisition won't go ahead, Melbourne-based SP AusNet said today in a statement to the Australian Stock Exchange. It cited worsening debt markets as the reason for canceling the purchase.
SP AusNet agreed in September to buy assets formerly owned by Alinta Ltd. from its parent to become Australia's largest power and gas transmission company in a market where energy demand is forecast to rise by 2 percent a year through 2011. SP AusNet planned to sell A$3.02 billion of shares and arranged a A$3.7 billion bridging loan to fund the purchase, which brokers including Credit Suisse Group said added no value.
``It sounds as if they got a bit of a heads-up from shareholders that they were going to vote the other way,'' said Grace Chan, a utilities analyst at JPMorgan Chase & Co. in Sydney. ``For shareholders I think this is a much better outcome because I don't think that the proposal was ever going to be great for existing shareholders, due to the price, the dilution effect.''
SP AusNet closed on Dec. 7 at A$1.19 in Sydney trading.
The proposed purchase comprised gas and electricity distribution networks in New South Wales and Victoria states, two natural gas pipelines and an energy asset management unit in eastern Australia. SP AusNet had forecast dividend payments would rise by an estimated 2.5 percent in 2009 as a result of the acquisition, which it estimated would yield A$90 million of ``synergies'' by 2010.
Standard & Poor's Ratings Services said last month it would cut SP AusNet's AA credit rating should shareholders approve the transaction and the equity raising proceed. It said the company's cash flows would ``deteriorate substantially because of the proposed high debt levels.''
SP AusNet's board and its financial adviser Pacific Road Corporate Finance decided it was ``no longer in the best interests'' of the company to proceed with the purchase, according to the statement.
``The board acknowledges that investors have had mixed views on the proposed acquisition,'' SP AusNet Chairman Ng Kee Choe said in the statement. ``However, had the capital market conditions been more favorable for raising fresh debt and equity capital the board would have proceeded to the security-holder vote.''
Singapore Power will ``for the time being'' manage the former Alinta assets as a separate entity, SP AusNet said. SP AusNet incurred about A$26 million in costs related to the transaction, which will be expensed in the accounts for the year ending March 31, 2008. ( Bloomberg )