Thanks for your reply Ozy,I agree the "no income" thing is...

Thanks for your reply Ozy,

I agree the "no income" thing is misleading I meant a reasonable amount earnings to be recycled into capex.

I think the "expressing a desire to retain more earnings" is the euphemistic of saying "as 51% shareholders we are going to" and thus you better get yourself sorted. I hardly think that a strategic review could come up with "thanks but no thanks.... we'd just as soon have our earnings distribution please" because it is CKI who calls the shots.

Some facts are pretty clear, including that capex needs to double over the next period (I take this to mean next 5 year regulatory period) and that will reduce ditributions to SKI. Also, the desire to reduce gearing at the asset level, should CKI choose, means even more distributions retained and not paid to SKI.

The sudden and all-encompassing strategic review is surely in recognition that the comapny cannot run "business as usual" the next 5 years with much reduced earnings being distributed. SKI have debt interest commitments, repayments and covenants that will not be met if sufficient cash is not ditributed from underlying assets and/or dividends will have to be cut at the minimum assuming enough cash is still distributed to cover debt repayments etc.

Earnings growth is of no value to lenders if the earnings is ring-fenced within a business SKI cannot control or get the cash out of (asset rich, cash poor). There is no security for the bank in the sense that even in bankruptcy the bank cannot get it's hands on the cashflow should CKI want to recyle it within the business (no, I'm NOT suggesting they will go bankrupt).

I am suggesting that they need a certain amount of earnings distributed to keep running the business as a dividend paying utility while investing heavily in the ubnderlying business growth. The strategic review basically spells out that the market no longer is willing to just "gear-up" and lend SKI the money for more capex and neither does the market want a hold a utility that doesn't pay dividends or needs to keep kicking the can for capex spend.

What I cannot see is how they get out of this hole where they have little leverage or liquidity in the underlying business assets, need to recycle a large amount of earnings into doubling yearly capex and reducing gearing in the underlying business, possibly need to reduce their own gearing at company level given the above distribution uncertainties and all the while during regulatory uncertainty.

I think that anyone who carefully reads the "strategic review" release will see that a capital raising or asset sell down (in the absence of a takover offer) is exactly what the board are contmplating. To their credit rather than rush into a cap raising they are looking at whether a deal can be struck that crystallises better value, quicker, for the shareholders than the obvious. I just see the risks that it all hinges on CKI's goodwill rather than any leverage SKI can bring to bear and without that goodwill takeover offer it will end up in capial raisings.

Personally I like the underlying assets, I would be prepared to forgoe dividends for capital gain but that would only be with the certainty of what direction is being taken and at the appropriate discount to NTA. I only post to see if I have it badly wrong and they represent a bargain, and others contemplation.

goodluck