Vector – Poor and confusing disclosure
There are a number of reasons why the proposed sale of Vector’s Wellington electricity network assets demonstrates that New Zealand equity investors need to have thick skin. These include: Vector - Sector EBIT ($ million) 2007 2006 Auckland Electricity 180.40 184.10 Wellington Electricity 86.10 85.70 Gas Wholesale 77.40 68.70 Gas Transportation 74.70 53.00 Technology 20.60 12.90 Divisional EBIT 439.20 404.40 Corporate / Other (70.01) (41.70) Total 369.10 362.70
1) Poor disclosure. Vector issued a short two page statement with no information on the profitability of the Wellington assets. Later that day Cheung Kong Infrastructure Holdings, which is purchasing the Wellington network for $785 million, released an eight page statement containing EBIT and net profit figures of the acquired assets for the June 2007 and June 2006 years. Why didn’t Vector release these profit figures to the NZX?
2) Sharemarket trading. Cheung Kong shares were suspended on the Hong Kong Stock Exchange for 24 hours until full details of the transaction were made public. Why doesn’t the NZX have a similar requirement?
3) Confusing statements. Vector chairman Michael Stiassny indicated that the proceeds would be used to repay debt but also suggested that the company would look at acquisition opportunities. Why did Stiassny imply that Vector would look at further purchases when its main priority is to repay debt?
4) Overseas ownership. A spokesman for Finance Minister Michael Cullen said that the test regarding foreign ownership would be less rigorous than Auckland Airport because the Vector assets were not on sensitive land. Did the Auckland airport rejection really have anything to do with “sensitive land” and why is the sale of 100% of an electricity network to an active Hong Kong company more acceptable than the purchase of 40% of an airport by a passive Canadian pension fund?
The blunt reality is that Vector has underperformed since it was listed in August 2005. It has had a number of dramatic board resignations, its CEO and CFO have left and the group’s share price has fallen from the IPO price of $2.38 while the benchmark NZX50 Index has risen 9.1% over the same period.
Vector’s share price has fallen since the asset sale announcement while Cheung Kong’s price jumped 2.2% after its suspension was lifted yesterday. Vector’s disappointing response is partly due to its poor disclosure and confusing corporate strategy.
Brian Gaynor, 30 April 2008