Genesis Energy is seeking to raise up to $275 million in a capital bonds issue to help fund the $821 million purchase of the Tekapo A and B hydro power stations.
Meridian Energy owns the two power stations in the upper Waitaki catchment but the Electricity Industry Act, passed by Parliament last year, directs they be sold to Genesis.
The move, along with other measures in the Act, is aimed at increasing competition in the electricity industry. The purchase is expected to be completed in June.
In the investment statement for the offer, Genesis said it considered the cost of future remedial work (including capital expenditure and related lost generation outages) required for the Tekapo stations was greater than the cost taken into account in determining the purchase price.
But in light of the potential portfolio benefits, the company's board supported the acquisition of the stations at the $821 million price tag.
Recognising that accounting requirements for fixed asset valuations did not permit potential portfolio benefits to be taken into account, a one-off non-cash accounting revaluation charge of $103 million had been recorded against the acquisition cost. That would ultimately result in a reduction, after tax, of $74 million in shareholders' equity.
In a letter to potential investors, Genesis Energy chairwoman Dame Jenny Shipley and chief executive Albert Brantley said the restructuring of the industry had provided an "exciting opportunity" for Genesis Energy to acquire the two stations.
It would give Genesis access to long-life generation assets that were not easily replicated in the New Zealand market, ensuring a more balanced and diversified generation portfolio with lower carbon intensity.
It would also allow Genesis to expand its retail offering into the South Island market.
In anticipation of the acquisition, the company had been actively seeking South Island retail customers since February last year, an offering which had been "very well received".
The 185MW Tekapo A and B power stations generate electricity from the inflows into Lake Tekapo.
Hydro storage used to generate electricity at Tekapo A flows through a canal to Tekapo B, where again the hydro storage of Lake Tekapo is used to generate electricity. Following generation at Tekapo B, the water is discharged into Lake Pukaki.
