Online Stockmarket Trading Update

The New South Wales government has undertaken a 2-year process to address its energy reform strategy. Part one of its power privatisation, involving the exiting of electricity retailing by the government, was completed late last night, with confirmation the $5.3 billion deal had been awarded to a consortium including Origin Energy and Hong Kong-based TRUenergy. The deal means the consortium will take over the three state-owned electricity retailers and the trading rights to power from two stations.

There are a number of winners and losers as a result of this deal.

The Losers

* AGL shareholders who suffered a slump in their shareholder value, after it was reported that AGL lost the deal.
* AGL corporation, as it loses its dominance in the retail energy supply business. AGL is now only the third-largest company in the retail electricity arena with a 10 percent market share.
* The energy company directors who resigned en masse. Eleven resignations came from the boards of power generators Delta and Eraring, who had concerns about their responsibilities resulting from the deal.
* NSW electricity consumers, who potentially face higher electricity prices, though the NSW government says there will be a more competitive electricity market.
* Origin has been put on negative debt watch by the Standard and Poor’s ratings agency, due the funds it will have to raise to fund the deal.
* NSW taxpayers lose out if the NSW Greens are correct in arguing the government could have raised more money on the deal. The opposition said that the deal bid represents only half of the true value of the assets.

The Winners

* The New South Wales Labor government, in finally realising the deal with the approval from the ACCC.
* Origin, because through the deal it becomes the largest retail energy supplier in the country.
* The Hong-Kong based TRUenergy gets access to the Australian power supply sector.
* TRUenergy and Origin through the deal will emerge with a combined 85 percent of the state’s power market.

Our View

Investors need to get on the shareholder register to be eligible to participate in any capital raising(s) that are likely to result from this deal. Monitor the rhetoric that will no doubt unfold near-term in the lead-up to the next state elections, due in March next year.