6. Capital Structure
The Reform Package provides that the purchase by the new SOEs of the assets they have been allocated will be by way of a book value transfer. It further provides for the allocation of ECNZ's debt to the new SOEs until such time as they can arrange their own debt raised from financial markets. It therefore follows that:
- the opening book value of assets for each SOE is determined by the allocation process; and
- the opening book value of liabilities for each SOE is determined by ERTU's allocation of ECNZ's existing debt.
ERTU's financial viability analysis has determined that the Huntly SOE has the least ability to bear financial leverage. The allocation of debt was therefore determined by examining the Huntly SOE first. Because of its higher operating cost structure and marginal position during some scenarios, it has only been allocated $50 million of initial debt.
The remaining debt has been allocated between the two other SOEs on a basis which achieves similar financial strength and the same likely credit rating. This leads to the following initial capital structures.
| | Waikato SOE | Huntly SOE | South Island SOE |
|---|
| Current Assets | $2 m | $74 m | $3 m |
| Fixed Assets | $765 m | $467 m | $2130 m |
| Total Assets | $767 m | $540 m | $2133 m |
| Current Liabilities | $0m | $0m | $0m |
| Term Liabilities | $402 m | $92 m5 | $527 m |
| Shareholders Funds | $364 m | $448 m | $1606 m |
| Total Liabilities | $767 m | $540 m | $2133 m |
| Gearing | 53% | 17% | 25% |
The above capital structure assumes no further retail businesses are purchased by ECNZ and also, conservatively, assumes no further small hydro sales prior to 31 March 1999.
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