Take this on board: CER has and does word it's announcements very craftily. Further to this they flat out refuse to provide dividend guidance. Fair enough but what we really should be debating is this: Technically speaking does CNP benefit from distributions from CER or from CER withholding dividends?
Yes I mean CNP that wasn't a typo.
I will illustrate with an example and keep in mind what the lenders wanted from CER and why it’s so important to free up cash flow and earnings so it can be passed around to other areas of the TOTAL GROUP.
Ask yourself this: What is the effect of A. distributing dividends or B. withholding dividends from CNP’s point of view (not CER).
Example:
CNP owns (for all intents and purposes) 51% of CER. Everyone else owns 49% CNP will not be distributing dividends so as to focus on reducing gearing. CER makes a distributable profit of $100. Should CER pay a dividend or not and what are the consequences?
A. Pay a dividend.
$51 flows into CNP (and associated entities) and look-through gearing is reduced by $51. $49 goes to everyone else.
B. Withhold a dividend and pay penalty tax at 46.5% including the Medicare Levy. $53.50 stays in CER and look-through gearing when accounts are rolled up to CNP is reduced by $53.50. Everyone else gets NIL dividend but CNP obtains an enhanced debt reduction objective.
Remember that every dollar of debt that is reduced ANYWHERE across any of the entities IMPROVES CNP’s situation. You cannot deny this.
Now I agree that this creates a hot little topic that many will protest vociferously, but now you may understand why the board separation issue and CER independence from CNP is very important, albeit extremely unlikely at present despite what CNP would have you believe.
It also creates debate as to just what CER (CNP) management will do. They have all but already told us there will be some type of distributable profit/earnings that will vary less than 15% + or – in the last announcement before today with regard to the ASX price query.
From CNP’s point of view, CER’s accounts are rolled up entirely so it’s share price is irrelevant. What is relevant are its assets and liabilities as they appear on CNP’s books. An additional$2.50 ($2.50 being $53.50 less $51.00) of debt reduction per $100 of distributable profits is no small thing.
In any case it’s up for discussion and its almost mid-May and the Financial Year is almost ended and we have no dividend guidance. You judge for yourselves.
CER Price at posting:
6.6¢ Sentiment: None Disclosure: Held
