Spark Infrastructure’s Share Price Plummets 7.3% with Tax Ruling

At time of writing, Spark Infrastructure Group [ASX:SKI] shares are trading 7.37% lower than their trade halt lock price of $2.51 apiece.

The essential service infrastructure company is currently trading their shares 18.5 cents down at $2.32.

Spark Infrastructure enforced a trading halt last Thursday, 7 February prior to an impending announcement. Today, the company released this announcement on the ASX, which is likely the cause of this decline.

The announcement revealed a disappointing ruling by the Federal court for inaccurate tax claims made by Victoria Power Networks (VPN) — an electricity distribution company which Spark Infrastructure holds a 49% stake in.

Details of the court decision

The decision is in relation to a long-running dispute over tax payable by VPN from 2008–2011.

According to the announcement, the Federal court came to the decision that assets of VPN that involved customer contribution to construction costs or gifted assets transferred from customers, should be treated as assessable income for tax purposes.

This obviously leads to a misevaluation of assessable income that was declared, putting VPN in a sort of tax-fraud situation.

As such, as per the announcement:

Due to the partnership structure [between VPN and SA Power Networks], Spark Infrastructure’s share of the tax attributes of SA Power Networks are recognised in the Spark Infrastructure Holdings No.2 Pty Ltd (“Spark No2”) tax consolidated group.

The previously available tax losses attributable to Spark No2 have been reducing over time. If it is determined that the Federal Court’s decision applies to Spark No2, it is anticipated that Spark No2 would need to restate its remaining tax losses, recognise additional capital assets that will be deductible in future income tax years and recognise a current tax liability estimated to be $65 to $70 million to cover all years up to and including 31 December 2018.’

Spark Infrastructure therefore intends to become a taxpayer from 2019 onwards.

How this has affected Spark Infrastructure

VPN are still debating whether or not to appeal the court’s ruling. But Spark Infrastructure have acted against hedging their bets on this more desirable outcome.

The company’s chairman, Doug McTaggart has thus spoken on behalf of the board, saying ‘it would be prudent to plan to re-base distribution guidance for 2018–19’.

Distribution shareholders are now likely to fall to 15 cents per share for 2019, which is a decrease from the 2018 distribution of 16 cents per share. This means the company have failed to meet their previously signalled expectation of distributions increasing through to 2020 by a minimum of the rate of inflation.

JP Morgan analyst Mark Busuttil says this is the ‘biggest negative from the announcement’ in his opinion.

While the road ahead looks gloomy right now, we can’t yet rule out the possibility of this court decision being appealed. If that is the case, the negative impact of this ruling could be reversed.

For the moment, we just have to wait and see what happens.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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