Moody’s cuts Transpower credit rating on dividend resumption

Moody’s cuts Transpower credit rating on dividend resumption

July 5 (BusinessDesk) – Transpower New Zealand Ltd., the state-owned national grid company, had its credit rating cut by Moody’s Investors Service after announcing it will resume dividend payments a year earlier than it had flagged.

The rating was lowered to A1 from Aa3 to reflect “the expected weakening in Transpower’s financial metrics” as a result of the dividend policy change, Moody’s analyst Matthew Moore said in a statement.

Transpower is planning to spend $3 billion over the next five years to upgrade the national grid, which is groaning under increased demand and capacity bottlenecks.

The utility’s monopoly position “is balanced against the expected weakening of Transpower's financial profile resulting from the company's large capital expenditure pipeline and the shift in dividend policy, and the uncertainty around the company's regulatory framework, which continues to evolve,” Moore said.

The Commerce Commission this week issued a draft methodology for calculating allowable rates of return for the state-owned grid operator.

Transpower said in a statement posted on its website today that it made the decision to resume dividend payments to the government a year earlier than planned after a review concluded that its spending programme “can continue to be funded prudently, while at the same time recommencing dividend payments to the Crown from fiscal 2011/12.”

A key factor in the review was the highly regulated nature of Transpower’s revenue and cash flows, and its current capital structure, it said.

The target distribution is expected to average between 65% and 75% of free cash flow, after deduction of replacement and refurbishment capital expenditure, it said.

Moody’s said resuming the dividend payments will likely mean Transpower’s ratio of free cash flow/interest will be 2.7x to 2.9x, while FFO/debt would be 10% to 12%, levels more appropriate for a Baa1 rating.

Transpower’s actual rating is higher because of the assumed government support for the company.

(BusinessDesk) 13:50:12

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