NEW ZEALAND GAZETTE, No. 191

9 DECEMBER 2008

Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2008

GAS DIVISION

c) US dollar private placement

$NZ 256 million of US dollar private placement notes were issued on 25 November 2003 to private US investors by Powerco Limited, of which $92.385 million has been allocated to the Powerco gas division (2007: $63.743 million). The coupon payments are on a semi-annual and the note issue expires 25 November 2016 (11 year), 25 November 2016 (12 year) and 25 November 2016 (13 year). The notes are secured against the network assets of Powerco Ltd through the Security Trust Deed.

The interest rates on the notes are fixed until maturity:

• 11 year US dollar private placement notes: 5.47%
• 12 year US dollar private placement notes: 5.67%
• 13 year US dollar private placement notes: 6.67%

d) Commercial paper facility

Powerco Limited has established a commercial paper facility to enable Powerco Limited to borrow money from the capital market. The programme is supported by a cash advance facility of $200 million with a syndicate of banks made up of the Commonwealth Bank of Australia, Westpac Banking Corporation and ANZ National Bank. This facility expires in August 2009.

The facility has the benefit of the Security Trust Deed dated 10 March 2005 as a Senior Secured Debt Facility, and as such the principal is secured against the network assets of Powerco Limited. At 30 June 2008 a sum of $45,000,000, which includes an equivalent portion of $1,094,133 at 90 day bill rate with a weighted average interest rate of 8.15%, with varying maturity dates, had been drawn down under the commercial paper programme (2007: $159,300,000 was drawn down under the commercial paper programme with an average interest rate of 8.05% and a weighted average rate of 7.7%). As at year end the carrying value approximated the fair value.

At year end the amount of the commercial paper facility allocated to the Powerco gas division was $32,311 million (2007: $32,521 million).

e) Commercial bank debt

A $160 million Term Loan Facility, agreed and drawn in August 2004, expiring August 2009, which was used to refinance the remaining tranche of the Asset Purchase Facility used to fund the acquisition by Powerco Limited of United Networks Limited (UNL) assets. The Term Loan Facility is jointly provided through Commonwealth Bank of Australia, Westpac Banking Corporation and ANZ National Bank, each with an equal share. The interest rate on the $160 million Term Loan Facility is currently 9.34%. The Term Loan Facility has the benefit of the Security Trust Deed dated 10 March 2005 as a Senior Secured Debt Facility and as such is secured against the network assets of Powerco Limited. As at 30 June 2008, a sum of $70 million had been drawn (2006: $163 million drawn with an interest rate of 8.1%).

During the period Powerco increased the revolving cash advance tranche to the existing $230 million Standby Cash Advance Facility from NZ$30 million to NZ$50 million. The purpose of the facility is to provide liquidity to the short-term funding of development capital expenditure and the facility will be drawn down and repaid as required. This additional amount of the facility is jointly provided by Westpac Banking Corporation, ANZ National Bank and Commonwealth Bank of Australia and is due to expire on 3 August 2009. As at 30 June 2008 NZ$45 million was drawn on the facility at a weighted average interest rate of 9.08% (2007: NZ$41 million drawn at a rate of 8.94%).

At year end the amount of the term liabilities allocated to the gas division was $42,980 million (2007: $54,689 million). There was no current liability balance at year end (2007: $5,799 million).

As at the reporting date the carrying value approximates the fair value with an interest rate reset each quarter.

f) Covenants

Powerco Limited has covenanted with its counterparties to ensure certain financial criteria are met throughout the term of the debt agreements. There have been no covenant breaches to date.

g) Financial assets and liabilities

The following tables detail the fair value of financial liabilities:

The fair value of financial assets and financial liabilities are determined as follows:

• For floating rate debt carrying value approximates fair value due to continuing interest rate resets.
• Fair values for debt not applying floating rate derivative instruments matching tenor and term are used to offset position to calculate fair values. The movements in those derivatives approximate movements in market value.
• Fair value of financial derivatives and fixed rate debt are determined by reference to the market quoted rates input into valuation methods.