Contact Energy is tipped to be considering a rights issue to underpin its capital expenditure requirements of more than $2 billion for up to four years.
Dunedin brokers Peter McIntyre, of ABN Amro Craigs, and Suzanne Kinnaird, of Forsyth Barr, believe Contact will consider equity raising to bolster its capital expenditure programme, following reports from Australian analysts forecasting a similar consideration, the Australian Financial Review reported.
Mr McIntyre said because of the squeeze on the availability of commercial lending funds, Contact could be considering a rights issue to "pre-empt" the likelihood that inflationary pressures during the next two to three years would drive up working costs and also interest rates "significantly".
"Contact could be considering going to market earlier than analysts expect," he said.
ABN's four-year capital expenditure forecasts for Contact were raised 10% last month, picking $580 million spent during 2009, $750 million for 2010, $730 million for 2011 and $660 million for 2012.
Mr McIntyre said if 51.4% shareholder Origin Energy, which had already made two unsuccessful bids for Contact since 2004, underwrote any rights issue, it could increase its shareholding in ContactDuring the past five weeks in New Zealand, more than $1.3 billion has been raised in bonds and rights issues as companies bolster balance sheets to pay off debt and keep debt at more manageable levels.
Contact raised $550 million in five-year bonds during that period.
Ms Kinnaird said Contact's original intention was to fund the capital expenditure programme entirely with debt, but the ongoing credit crisis and increase in capital expenditure meant that plan "now looks difficult".
"While none of the potential sources of debt - banks, retail bonds or offshore are closed - we believe obtaining the funding required from any of these sources will either be very expensive or very difficult."
The difficulty in raising debt could be seen from the recent equity raisings from companies that were not in any obvious financial difficulty, Ms Kinnaird said.
Forsyth Barr estimated Contact would need to either raise $400 million to $500 million of equity or defer one of its geothermal projects.
"We favour equity raising as it provides Contact with a secure footing to move forward."
