Vector mulling network swap: sources

Lines companies Vector and Powerco may be planning to swap their Wellington and upper Central North Island networks, say market sources.

And the deal could provide Vector with several hundred million dollars to repay debt.

The sources say Vector's announcement it was looking at the sale of its Wellington electricity network, thought to be worth between $700 million and $1 billion, came as "a bolt from the blue".

Some expressed surprise at a possible sale, but others say the move had the potential to bring further rationalisation of electricity networks, now divided among 28 players.

It is believed Powerco owner, Sydney-based Babcock & Brown Infrastructure has offered an asset swap between the two companies so each could have networks closer to their own bases.

Auckland-based Vector acquired its Wellington network, which also covers the Hutt Valley and Porirua, when it bought United Network assets in 2002.

At the same time, Taranaki-based Powerco purchased United's central North Island networks, including Tauranga, eastern and southern Waikato, Thames and Coromandel areas.

One analyst said owning contiguous networks offered operators very good synergies.

"The possibility is significant rationalisation of lower and upper central North Island gas and lines networks between two major players," he said.

Powerco also owns gas networks in Wellington.

But if deal-making gets serious, the strategies in play will be one every New Zealander who has traded in a used car for a new one will quickly recognise.

The critical figure will be the difference between the respective valuations of the two sets of businesses.

Vector's Wellington network is bigger than Powerco's plum Tauranga lines business, but the Tauranga network is believed to be growing faster.

Vector chairman Michael Stiassny said Vector believed the Wellington network to be worth considerably more than $500 million.

Powerco paid $810m for the network assets it bought from United, but those also included assets in the Wellington, Horowhenua and Hawkes Bay areas, which Powerco would likely hold on to.

Vector has appointed Goldman Sachs JBWere to assess other options outright sale, or other reconfiguration. Vector said it may do nothing.

Many analysts are picking Vector to use any cash it gets from the deal to repay debt, some of which was incurred when the company bought the Wellington network five years ago, and which is coming up for refinancing or repayment.

"But this is a potential deal being driven primarily because it makes strategic good sense," said one.

- © Fairfax NZ News