31 Jul 2018

Contact sells LPG business to service debt, streamline strategy

3:05 pm on 31 July 2018

Contact Energy is selling its liquefied petroleum gas (LPG) business for $260 million to reduce debt levels, streamline its business, and increase its dividend payout.

Closeup valve of LPG cylinder.

Contact Energy is selling Rockgas operation to Gas Services NZ Midco. Photo: 123rf

It is selling its Rockgas operation to Gas Services NZ Midco, an arm of the gas distribution company First Gas.

First Gas bought Contact's Ahuroa gas storage facility in Taranaki for $200m in December last year, and in the past two years has also bought Vector's gas pipelines business, and the main piepline from the Maui gas field to the Huntly power station.

Contact bought Rockgas from one of its major shareholders, Origin Energy, for $156m in 2007.

Contact Energy chief executive Dennis Barnes said six local and international companies showed buying interest in the past year.

Mr Barnes said Gas Services was the preferred buyer because it agreed to let Contact keep selling LPG, which was a pre-requisite for the sale.

"This will enable us to focus on our core business," Mr Barnes said.

Contact wanted to be a mass market retailer, and it made sense to separate the infrastructure from the more profitable customer-facing business, he said.

Gas Services will pay Contact $2m a year to keep operating a call centre and billing services for those customers.

Contact did not have a pressing need to cut its debt, Mr Barnes said.

"Time would have solved the debt levels so, actually, it didn't weigh that greatly on the decision, it's just a nice consequence."

Rockgas' 150 staff will transfer to the new company with the same employment contracts.

The sale is subject to Overseas Investment Office approval, which the businesses hope to have by the end of this year.