Electricity provider AGL Energy says it is confident of getting regulatory approval for its plans to buy Australia’s biggest brown coal power station and biggest coal mine.
If the Australian Competition and Consumer Commission (ACCC) agrees to remove Federal Court undertakings that limit AGL’s ownership at the Loy Yang power station to 35 per cent, the company will then have to raise $1.5 billion.
The energy provider announced plans on Friday to raise a combination of shares and hybrids to buy the brown coal-fired power and greenhouse gas-intensive station and adjacent coal mine, which provide a third of Victoria’s power.
AGL already owns 32.5 per cent of the asset and while it will pay only $448 million upfront to buy the other 67.5 per cent, it needs more cash for corporate costs and to pay down some of Loy Yang’s $2.5 billion in debt.
AGL chief executive Michael Fraser on Friday said other transactions the ACCC had approved, such as Origin and TRUenergy’s acquisition of NSW retail energy assets, gave him confidence of getting the go-ahead.
The ACCC says it will scrutinise the deal and complete public consultations.
Mr Fraser described Loy Yang, in Victoria’s east, as a high quality asset that would produce electricity at a far lower cost than equivalent NSW black coal-fired generators.
It would give AGL one of the largest, most competitive generation portfolios in the country, filling a gap and complementing its upstream gas and hydro developments, he said.
“It greatly improves our risk management capabilities and it locks in fuel supply costs,” he said in a teleconference.
“There’s no issues about where do we get coal from, what price are going to have to pay for our coal, how are we going to transport coal from the coal mine?”
The transaction would be earnings accretive from the next financial year, the company said.
The remaining 67.5 per cent is owned by Japanese utility Tepco, which needs funds after being rocked by last year’s nuclear disaster, Thai-owned Ratch Australia and three super funds.
Credit ratings agency Standard and Poor’s released a statement saying it had placed AGL on a negative credit watch, raising concerns about financing and how much Loy Yang debt AGL would take on.
It also pointed out that while a long term offtake agreement exists with Alcoa, the aluminium giant is also reviewing and considering closing its struggling smelter operations in Victoria.
AGL shares plunged 67 cents, or 4.7 per cent, to close at $13.67.
Morningstar equities analyst Gareth James said while the company’s BBB high credit rating should be maintained under the deal, it was a complex one.
“On balance, it appears to make sense and reduces exposure to wholesale electricity prices,” he said.
AGL also announced a 51.2 per cent fall in first half net profit to $117 million on Friday due to a $115.9 million fall in the value of its derivatives.
Its underlying profit of $232.9 million for the half year ended December 31, 2011, was up three per cent on the prior corresponding period.
The company said it anticipated further earnings growth in the second half and was on track to deliver full year underlying profit in line with previous guidance of between $470 million and $500 million.
Mr James said particularly pleasing was the addition of 100,000 new retail customers, including 89,000 new electricity customers in NSW.
The interim dividend has been maintained at 29 cents per share, fully franked.
