AustraliaÆs APT launches A$356 million rights issue

The question is, will Alinta participate in the 2:7 offering?
Gas distributor Australian Pipeline Trust has launched a 2:7 renounceable rights issue to raise A$356 million ($267 million) that will be used to reduce gearing levels and fund future acquisitions. The deal follows the October acquisition of the Allgas distribution business for A$519 million.

Shares in the rights issue will be offered at a price of A$3.75 each, which is a 17% discount to the closing market price on November 15. The 94.9 million ordinary shares will be fully paid and will rank equally with other units, but will not be eligible for the 7 cent interim distribution for financial year 2007.

Petronas Australia, a division of MalaysiaÆs national oil and gas company, owns a 13.2% stake in APT and has already indicated that it will take up its entitlement of new shares.

The balance of the rights issue is being underwritten by ABN AMRO Rothschild.

The real question is whether APTÆs other significant shareholder, Perth-based energy group Alinta, will participate in the offering. Alinta owns 35.4% of APT û approximately 25.4% directly and 10% through an entity called Trewas. But APT and Alinta arenÆt happy bedfellows. The two are embroiled in a series of court cases and anti-trust hearings that could deter investors from participating in the rights issue.

In June this year, Alinta was involved in one of the biggest mergers in the country, securing the transmission and asset management businesses of AGL for a total of A$6.5 billion. As part of the deal, Alinta gave undertakings to AustraliaÆs competition watchdog, the ACCC, that it would sell its stake in APT and some other assets. These undertakings werenÆt executed and, since then, Alinta has submitted two new draft undertakings suggesting that it will hang on to its APT stake if APT disposes of its interests in the Moomba-Sydney and Parmelia pipelines and Victorian gas distributor GasNet. The ACCC is still considering these changes to the initial agreement. Meanwhile, APTÆs board says it has no intention of disposing of the assets.

Two weeks after agreeing to the first round of undertakings, Alinta began buying more APT shares through Trewas, quickly amassing a 10% stake. APT referred the purchase to the Takeovers Panel and in early September the panel deemed the purchase as unacceptable and ordered that Alinta stop acquiring APT units. It also ordered that TrewasÆ shares be sold via a bookbuild or into an unconditional takeover bid. Alinta is now appealing the decision to the Full Federal Court.

The uneasy relationship between the two parties is evident in the disclosure statement accompanying the rights issue. ôAPT is unaware of AlintaÆs intentions for its investment in the company,ö the document says. ôAlinta may be precluded from taking up the new units for which it is entitled because of undertakings it has given the Federal Court.ö Though APT says it doesnÆt intend to oppose AlintaÆs participation in the rights issue ôif Alinta agrees that any new units issued become subject to the same orders of the Takeovers Panel and undertaking to the Courtö.

Depending on the outcome of the expensive legal proceedings, market watchers say Alinta is positioning itself to make a full takeover bid for APT. This, says the disclosure document, presents some risks to investors planning to participate in the rights issue. Of course, another risk is that Alinta will be forced to sell all or some of its shares, putting downward pressure on the share price.

APT is trying to divert attention from these issues by rewarding shareholders with a higher dividend. On Thursday the company announced that it will pay a distribution of 28 cent per share for the 2007 financial year on the expanded issued capital base, representing an increase of 16.7% on last yearÆs dividend.

The issue of about 94.9 million new shares will bring APTÆs total number of shares on issue to 427 million. Shareholders have until December 11 to subscribe to the offering with allotment scheduled for December 18.

APTÆs shares closed flat at A$4.60 each on Thursday (November 16) following the rights issue announcement. The broader market meanwhile closed down 37 points or 0.7%.
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