Us Vulture Funds Circle Loy Yang
The Age
Wednesday June 25, 2003
Doubts about the future of Victoria's largest power station, Loy Yang A, have grown with the emergence of a possible new player in the stymied sale process, a consortium of two US private investment houses, Hellman & Friedman and Newbridge Capital.
The two funds, under the management of John Wylie, merchant banker and manager of the state's electricity privatisation, have been working on a possible Loy Yang bid for months but are unlikely to enter the formal sale process before the position of Australian Gas Light is resolved.
AGL's bid for Loy Yang was blocked by the Australian Competition and Consumer Commission, due to concerns that its plans would substantially reduce competition in the electricity market. The ACCC made the same judgement on a plan by Origin Energy to bid for the power station in conjunction with financiers.
Bankers have given Loy Yang until July 12 to repay a $500 million down-payment on its $3.5 billion debt or risk administration. The present owners - troubled US groups CMS Energy and NRG, and Macquarie Bank offshoot Horizon Energy - are trying to negotiate a four-month extension to the repayment demand in the hope a sale can be made in the meantime.
Hellman & Friedman and Newbridge are believed to be bargain hunting in classic vulture-fund mode, seeking to buy distressed assets and sell them when the market improves.
As a result, they are unlikely to formally bid, instead waiting to see if the AGL and Origin proposals are finally blocked by regulators. If that happens and no other buyers emerge the two would deal with the banks, possibly offering a deal under which the bankers would lose money and the equity holders would walk away with nothing.
The structure of their proposal would be radically different from anything AGL and Origin would put forward and would include a comprehensive funding proposal to existing banks.
AGL is still considering its options after the Victorian Government cleared a regulatory hurdle in the path of its bid.
It is believed there was a difference of opinion in the ACCC over the AGL proposal, with the regulator's first review giving the energy retailer the go-ahead. However, this was blocked by a second internal review, over concerns that if AGL was able to buy a base-load power station other retailers would soon follow, leading to a reaggregation of the power industry in private hands.
Buyers have been scarce because the British and US utilities that made privatisation a bonanza for the Kennett government have struck difficulties in home markets. Asian buyers who have snapped up Australian utilities appear unwilling to take the risks associated with sinking large amounts of capital into unregulated parts of the power business.
The reporter holds Origin shares.
© 2003 The Age