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Contact Energy's cornerstone shareholder, US-based Edison Mission Energy, has launched a $240 million offer of redeemable preference shares.
The issue is thought to be the biggest preference share offer ever made in New Zealand. The proceeds from the offer, which is being organised by Credit Suisse First Boston, will be used to help finance Edison's purchase of shares in Contact.
Edison, the United States eight largest power company, paid the New Zealand Government $1.3 billion for a 40 per cent cornerstone shareholding in Contact earlier this year. The balance of the government's holding in Contact was floated to the public.
Three categories of preferences shares, which are similar in character to senior bonds, will be offered to the public. The shares, which will have a fixed rate of return, will be available in either a two-year, three-year or four year terms.
The retail offering is being made through newly created company Edison Contact Finance and offers dividend rates of 5 per cent for the two-year maturity, 5.5 per cent for three years, and 5.75 per cent for four years.
A key feature of the offering is the full imputation of dividends which will result in a pre-tax yield of 8.58 per cent on the four year maturity for a taxpayer on the top marginal rate of 33 per cent. For the two and three year maturities the returns are 7.46 per cent and 8.21 per cent respecitvely.
Taxpayers on lower marginal tax rates may have credits left over to offset against other income.
The minimum investment will be $5000, then in multiples of $1000. They will carry full imputation credits.
Redeemable prefereence shares differs from a bond in that they pay a fully-imputed dividend instead of interest. Also they are backed with capped top-up guarantees from Edison Mission should Contact dividend streams be insufficient to cover redeemable preference share dividends. Edison Contact Finance will also have a mortgage over the relevant Contact shares.
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