SP AusNet Cut to ‘Hold’ by Goldman JBWere on Bushfire

By Angela Macdonald-Smith

Feb. 17 (Bloomberg) -- SP AusNet, the Australian power distributor majority owned by Singapore Power Ltd., was cut to “hold” from “buy” by Goldman Sachs JBWere Pty, which cited its potential liability for two bushfires in Victoria.

“We cannot recommend buying SP AusNet given the unquantifiable nature of this risk,” Goldman Sachs JBWere said in a Feb. 16 report. Should SP AusNet’s liability amount to A$100 million ($65 million), the company may have to either reduce its dividend or take on more debt, it said.

A writ was filed yesterday by Slidders Lawyers in the Supreme Court of Victoria, on behalf of landowners and residents who suffered losses in bushfires this month, alleging Melbourne- based SP AusNet allowed faulty power lines to catch fire. The utility is blamed for causing fires at Kilmore and Beechworth, according to the court documents.

Melbourne-based SP AusNet said it believes the claim “is premature and inappropriate” given the establishment of a Royal Commission to examine the bushfire crisis. The company will “vigorously defend the claim,” it said in a statement today to the Australian Stock Exchange.

SP AusNet fell 5.3 percent to 99 cents in Sydney trading, the lowest close for four weeks. Its Singapore shares dropped 3.9 percent to 99 Singapore cents.

“We think SP AusNet’s strong operational focus suggests it should have proper maintenance schedules in place, which should in our view help to address the allegations,” Merrill Lynch & Co. said in a separate Feb. 16 report. Merrill retained its “buy” recommendation on the stock.

Liability Insurance

The company’s legal liability has been capped at A$100 million under a 1995 agreement between the former state government and private utility operators, the Sunday Age newspaper reported Feb. 15.

SP AusNet said it has liability insurance that provides cover for bushfires and is reviewed annually. The cover “is arranged with local and global insurers, many of which specialize in the insurance requirements of the utility industry,” it said in the statement.

The death toll from the Feb. 7-8 bushfires that destroyed four major towns and dozens of hamlets around the state stands at 189. The fires razed more than 1,800 houses and left 7,000 people homeless, according to Victoria’s Country Fire Authority.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net