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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Channel Infrastructure NZ Ltd / Equity Bottom-Up

<h2>Refining NZ<br>Raising&nbsp;Capital to Fuel Private Storage</h2>
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<p><strong>RESTRICTED</strong></p>
<p>Refining NZ (NZR) has announced an NZ$43.5m capital raise to fund capital expenditure required to fulfil signed and under negotiation private storage contracts upon its shift to an import terminal in April 2022. Private storage capital expenditure is expected to total NZ$55m and includes contracts that have been signed as well as those NZR is still negotiating. According to the company, the private storage contracts will contribute ~NZ$110m (in real terms) over an initial 10-year term. Our rating is RESTRICTED.&nbsp;</p>
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<h3>Key points</h3>
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<li><strong>The offer</strong>:&nbsp;Consists of 1) an NZ$38.5m Placement, and 2) an ~NZ$5m Share Placement Plan (SPP). The Placement is underwritten at a minimum price of NZ$0.82, with the price set via a&nbsp;bookbuild. The SPP will be priced at the lower of the Placement price or a -2.5% discount to the five day Volume Weighted Average Price&nbsp;during the last five days of the SPP, which closes on 13 December 2020. The SPP&nbsp;is not underwritten and NZR may accept SPP&nbsp;oversubscriptions&nbsp;at its discretion.&nbsp;</li>
<li><strong>Use of proceeds</strong>:&nbsp;The funds will be used to fund private storage capital expenditure that NZR estimates will total ~NZ$55m (with NZ$30m of this&nbsp;relating to contracts already signed).&nbsp;</li>
<li><strong>Net debt&nbsp;position</strong>:&nbsp;NZR reported net debt&nbsp;of NZ$230m at its most recent operating update for the period ending 31 October 2021. It has continued to run the refinery at a cash neutral position while it undertakes the transition to an import terminal. This additional funding will ensure&nbsp;there is sufficient balance sheet headroom to complete the private storage related&nbsp;capital expenditure.</li>
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<h3>Estimated financial impacts of conversion to an import terminal</h3>
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<p>Excluding private storage, NZR reiterated it expects FY23 (its first full financial year as Channel Infrastructure) revenue to be ~NZ$110m with ~NZ$35m to ~NZ$38m in operating costs and ~NZ$12m in financing costs. NZR's stated range for the total cash cost of the conversion (excluding private storage related capital expenditure) remained between NZ$200m to NZ$220m spent over the next five to six years, with 2/3 of this expected to be spent by the end of 2022. Channel Infrastructure's dividend policy will be to pay out between 60% and 70% of free cash flow and will be implemented once the company reduces leverage to below 4.5x net debt/EBITDA. It expects dividends to recommence one to two years following the transition to an import terminal.</p>
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Refining NZ Raising&nbsp;Capital to Fuel Private Storage

RESTRICTED
Refining NZ (NZR) has announced an NZ$43.5m capital raise to fund capital expenditure required to fulfil signed and under negotiation private storage contracts upon its shift to an import terminal in April 2022. Private storage capital expenditure is expected to total NZ$55m and includes contracts that have been signed as well as those NZR is still negotiating. According to the company, the private storage contracts will contribute ~NZ$110m (in real terms) over an initial 10-year term. Our rating is RESTRICTED.&nbsp;


Key points



The offer:&nbsp;Consists of 1) an NZ$38.5m Placement, and 2) an ~NZ$5m Share Placement Plan (SPP). The Placement is underwritten at a minimum price of NZ$0.82, with the price set via a&nbsp;bookbuild. The SPP will be priced at the lower of the Placement price or a -2.5% discount to the five day Volume Weighted Average Price&nbsp;during the last five days of the SPP, which closes on 13 December 2020. The SPP&nbsp;is not underwritten and NZR may accept SPP&nbsp;oversubscriptions&nbsp;at its discretion.&nbsp;
Use of proceeds:&nbsp;The funds will be used to fund private storage capital expenditure that NZR estimates will total ~NZ$55m (with NZ$30m of this&nbsp;relating to contracts already signed).&nbsp;
Net debt&nbsp;position:&nbsp;NZR reported net debt&nbsp;of NZ$230m at its most recent operating update for the period ending 31 October 2021. It has continued to run the refinery at a cash neutral position while it undertakes the transition to an import terminal. This additional funding will ensure&nbsp;there is sufficient balance sheet headroom to complete the private storage related&nbsp;capital expenditure.



Estimated financial impacts of conversion to an import terminal


Excluding private storage, NZR reiterated it expects FY23 (its first full financial year as Channel Infrastructure) revenue to be ~NZ$110m with ~NZ$35m to ~NZ$38m in operating costs and ~NZ$12m in financing costs. NZR's stated range for the total cash cost of the conversion (excluding private storage related capital expenditure) remained between NZ$200m to NZ$220m spent over the next five to six years, with 2/3 of this expected to be spent by the end of 2022. Channel Infrastructure's dividend policy will be to pay out between 60% and 70% of free cash flow and will be implemented once the company reduces leverage to below 4.5x net debt/EBITDA. It expects dividends to recommence one to two years following the transition to an import terminal.


Refining NZ: Raising Capital to Fuel Private Storage