Gaz Métro s Response to Tax Fairness Plan (SIFT Rules): Creation of Valener Inc. July 28, 2010

Transcription

1 Gaz Métro s Response to Tax Fairness Plan (SIFT Rules): Creation of Valener Inc. July 28,

2 Cautionary note regarding forward-looking statements Certain statements in this presentation may be forward-looking pursuant to applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Gaz Métro inc. (GMi), Gaz Métro Limited Partnership s (Gaz Métro) general partner, and is based on information currently available to management and on assumptions with respect to future events. The words plans, expects, estimates, forecasts, intends, anticipates or believes, or similar expressions, including the negative of these terms and future or conditional forms, often identify forward-looking statements. The forward-looking statements in this presentation include statements on expectations regarding the reorganization, the satisfaction of conditions in respect of the reorganization, the receipt of required approvals, the perceived benefits of the reorganization, expected future distributions to unitholders and taxability thereof, expected dividends to be paid by Valener Inc. (Valener) following the completion of the reorganization and the potential transfer of a portion of Gaz Métro s indirect interest in the wind power project located on the Seigneurie de Beaupré land, and the financial forecasts for Valener, a corporation to be incorporated which would hold the public investors interest in Gaz Métro. Forward-looking statements involve known and unknown risks and uncertainties and other factors outside management s control. A number of factors could cause actual results of Gaz Métro and Valener to differ materially from current expectations as described in the forward-looking statements, including, but not limited to, terms of decisions rendered by governmental bodies, general economic conditions, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supplies, the integrity of the natural gas distribution system, exchange rates fluctuations, the evolution of development projects, Specified Investment Flow-Through rules and other factors described in the 2009 Annual Information Form of each of Gaz Métro and GMi under the item Risks, and in the Management s Discussion and Analysis of each of Gaz Métro and GMi for the fiscal year ended September 30, 2009 and for the quarter ended March 31, A description of factors, risks and assumptions related to the announced strategic corporate reorganization is provided in Gaz Métro s July 28, 2010 information circular on the reorganization. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. Assumptions underlying the forward-looking statements contained in this presentation include assumptions to the effect that all required approvals and consents to implement the proposed reorganization will be obtained in due time, that no unforeseen changes in the legislative and regulatory framework of energy markets in Québec and the New England states will occur, that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur, that Gaz Métro will be able to continue its practice of distributing substantially all of its net income, that the authorized rate of return for Gaz Métro s natural gas distribution activity in Québec will be maintained or improve, that the Seigneurie Project will be completed within the contemplated timeframe and parameters, and other assumptions described in the Management s Discussion and Analysis of each of Gaz Métro and GMi for the fiscal year ended September 30, 2009 and for the quarter ended March 31, These forward-looking statements do not reflect any potential impact on the financial situation of Gaz Métro or Valener that may result from the adoption of the International Financial Reporting Standards starting in their respective 2012 fiscal year. These forward-looking statements are made as of this date, and management assumes no obligation to update or revise them to reflect new events or circumstances, except as required pursuant to applicable securities laws. Readers are cautioned not to place undue reliance on these forward-looking statements. Non-GAAP financial measures In management s view, certain adjusted indicators, such as adjusted net income, adjusted net income per unit and distributable cash provide readers with information it considers useful for analyzing its financial results. However, they are not standardized in accordance with Canadian generally accepted accounting principles (GAAP) and should not be considered in isolation or as substitutes for other performance measures that are in accordance with GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore only be considered as complementary information. 2

3 Change is inevitable Specified Investment Flow-Through ( SIFT ) tax legislation announced October 2006 Gaz Métro* would become taxable after September 30, 2010 if it remains public either as a Quebec limited partnership or a corporation *In this presentation, Gaz Métro means Gaz Métro Limited Partnership, and GMi means Gaz Métro inc. 3

4 Even though change is inevitable, no one wants to see a change in what investing in Gaz Métro has always represented: Strong & stable distributions 4

5 A diligent process to evaluate all options Independent committee of the Board Fairness opinion provided by BMO Nesbitt Burns Inc. to independent committee Available alternatives were examined in the interest of Partners and other stakeholders 5

6 2 options Proposed structure Status quo* Distribution stability Distribution optimization * Status quo refers to Gaz Métro remaining a public entity, either as a Quebec limited partnership or a corporation 6

7 Existing structure Noverco Inc.* 100% Public (Limited Partner) 29% GMi (General Partner) 71% Other Investments Gaz Métro 100% Gaz Métro Éole Inc. 50% Seigneurie Wind Power Project SIFT tax would reduce income distributable to Partners under status quo *See appendix for detailed corporate structure 7

8 Status quo distribution of $1.24 per unit not sustainable $1.24 $1.27 $1.32 $1.24 $1.15-$1.18 $0.85-$0.87 $1.21 $1.25 $1.25 $1.22* - $1.24* $1.15* - $1.18* $0.85* - $0.87* Fiscal Year 2007A 2008A 2009A 2010E 2011E Before-tax Adjusted Net Income per Unit Adjusted Net Income per Unit (excluding non-recurring items) Current Distribution per Unit 2011E After-tax Note: 2011E per unit metrics reflecting dilutive impact of planned equity offering of $100 million Key forecast drivers: *excluding non-recurring items Achieved return on equity for Québec natural gas distribution activity ( QDA ) Income and capital taxes included in QDA rates 8

9 Proposed Structure Creation of a new public corporation ( Valener Inc. ) and exchange of each unit of Gaz Métro held by the public for one share of Valener Gaz Métro becomes a private LP Option for the transfer at cost of 49% of Gaz Métro s indirect interest in Seigneurie Wind Power Project, within 90 days of closing of the proposed reorganization, granted to Valener Advance income tax ruling from Canada Revenue Agency confirms, among other things, that public unitholders will have the choice to effect the exchange of their units on a tax-deferred basis 9

10 The future looks a lot like the past Noverco Inc. 100% Valener Inc.* (Limited Partner) 100% Public GMi (General Partner) 71% 29% 49%* Other Investments Gaz Métro 51%* Gaz Métro Éole Inc. 50% Seigneurie Wind Power Project *Reflects proposed structure 10

11 Key transaction terms Distributions Increase in Gaz Métro distributions otherwise payable to Valener in the aggregate amount of $20 million over 3 years (equivalent to ~ $0.15 per Valener share per year, after tax) Gaz Métro intends to continue its practice of distributing substantially all of its net income post-transaction. In addition, any distribution less than 85% of Gaz Métro s net income (excluding non-recurring items) will require a resolution of its Board of Directors adopted by at least 90% of the directors. Management 15-year management agreement between Valener and Gaz Métro Access to Gaz Métro management for investor relations matters Governance & Rights Independent Board of Directors for Valener Valener has the right to nominate GMi Board members at pro rata of ownership in Gaz Métro Pre-emptive right in case of new issuance of Gaz Métro units Takeover bid and minority protection measures in line with applicable securities legislation 11

12 Key transaction terms (cont d) Seigneurie Wind Power Project Growth Prospects Other Option for the transfer at cost of 49% of Gaz Métro s existing indirect interest in Seigneurie Wind Power Project, within 90 days of closing of the proposed reorganization, granted to Valener (subject to obtaining all required consents) Valener to pursue development and/or acquisition strategies, subject to compliance with non-competition undertaking in Restricted Activities in favour of Gaz Métro ( Restricted Activities include any activity related to natural gas in Quebec, transportation or distribution of natural gas in Vermont, as well as generation, transmission or distribution of electricity in Vermont) Public company costs and some administrative expenses reimbursed to Valener by Gaz Métro for Years 1 to 5, and in part for Years 6 to 15, subject to maximum annual amounts 12

13 Three keys to maximizing dividends Valener Inc.* (Limited Partner) 100% Public GMi (General Partner) 71% 1. 29% 49%* Other Investments Gaz Métro 51%* Gaz Métro Éole Inc. 50% Seigneurie Wind Power Project *Reflects proposed structure $20 million in additional distributions over 3 years Reimbursement of public company costs and some administrative expenses Partial ownership in Seigneurie Wind Power Project $1.00 annualized dividend per share 13

14 Maximizing your payout $1.00/share** ~$0.85/unit* +$0.15 Status quo Valener Inc. * Including dilutive impact of planned equity offering of $100 million by Gaz Métro **Including dilutive impact of planned equity offering by Valener to cover its pro rata share of Gaz Métro s planned equity offering of $100 million 14

15 Valener results in higher income to investors Status Quo Impact on taxable investor* Valener Inc. Impact on taxable investor* $1.00 ~$0.85 $0.58 $0.68 Distribution/ dividend effective tax rate: 31.8% Dividend effective tax rate: 31.8% Distribution per unit After-tax Expected dividend per share After-tax * Assuming a Québec investor taxed at the maximum combined marginal rate announced for 2011 and taxable income is equivalent to distributions paid 15

16 Under proposed new structure, after-tax expected dividend is equivalent to an annual distribution of $1.31 per unit pre SIFT rules Impact on taxable investor* $1.31 $1.00 $0.68 Dividend effective tax rate: 31.8% Business income effective tax rate: 48.2% Valener s expected dividend per share After-tax Equivalent distribution per unit pre SIFT rules * Assuming a Québec investor taxed at the maximum combined marginal rate announced for 2011 and taxable income is equivalent to distributions paid 16

17 Visibility for Valener $1.00 per share dividend $1.00 $20 million additional distribution from Gaz Métro Cash flows from Seigneurie wind power project $ % ownership of Gaz Métro Distributable cash payout ratio Slightly above 100% ~95% Key assumptions: Equivalent authorized rate of return for Québec natural gas distribution activity Gaz Métro continues its practice of distributing substantially all of its net income Completion of Seigneurie wind power project within the contemplated timeframe and parameters Excluding new growth opportunities Excluding potential IFRS* impact *International Financial Reporting Standards 17

18 Valener better suited for capital markets 18

19 Capital market considerations Broaden investor base Additional flexibility Valener established as a corporation under the Canada Business Corporations Act Non-Québec residents no longer required to file a Quebec tax return Opportunity to market future offerings across Canada and in the U.S. $75 million committed bank facility available to Valener Opportunity to optimize capital structure over time Cost of debt capital lower than equity capital Tax shelter from interest expense Dividend Reinvestment Plan expected to be implemented 19

20 Valener has independent access to growth opportunities 20

21 Growth Prospects Valener can pursue development and/or acquisition strategies outside of Restricted Activities* Financing available to Valener through committed credit facility Valener not subject to limitations in interests in non-regulated energy activities and permitted economic activities, which are part of Gaz Métro s limited partnership agreement and trust deeds *As defined under transaction terms (refer to slide 12) 21

22 Value creation from partial transfer of indirect ownership stake in Seigneurie Wind Power Project to Valener Seigneurie Wind Power Project Installed capacity: 272 MW 20-year Power Purchase Agreement with Hydro-Québec Expected commissioning: December 2013 Evidence of growth 22

23 Next steps Mailing of circular Special meeting of unitholders Closing by September 30 August 2010 September 14, 2010 Approval of at least 66 ⅔% of votes cast by unitholders Approval of at least 66 ⅔% of votes cast by unitholders other than GMi and affiliated entities Approval of a simple majority of votes cast by minority unitholders (excluding interested parties) Approval of Superior Court of Québec 23

24 Transaction summary Optimizes payout Maintains stability Provides growth opportunities 24

25 Gaz Métro s Response to Tax Fairness Plan (SIFT Rules): Creation of Valener Inc. July 28,

26 Appendix 1: detailed corporate structure Trencap % Enbridge % GDF SUEZ % 1.The General Partner of Trencap is Capital d Amérique CDPQ inc. (0.01%), a subsidiary of the Caisse de dépôt et placement du Québec which, as a limited partner of Trencap, holds 51.11% of its units. The other limited partners are Fronds de solidarité des travailleurs du Québec (F.T.Q.) (16.66%), SNC-Lavalin Inc. (11.11%), British Columbia Investment Management Corporation (11.11%), the Régime des rentes du Mouvement Desjardins (8.33%) and the Régime de retraite de l Université du Québec (1.67%). 2.Enbridge holds its shares through its subsidiary, IPL System Inc. 3.GDF SUEZ (formerly Gaz de France) holds its shares through its subsidiary, Laurentides Investissements S.A. Noverco 100% Gaz Métro inc. (General Partner) 71.01% Gaz Métro Limited Partnership Public (Limited Partners) 28.99% 26