Pension fund opposes AGL Energy split, but Morningstar recommends in favor

MELBOURNE, May 25 (Reuters) – Australia’s HESTA pension fund said on Wednesday it would vote against the proposed split of AGL Energy (AGL.AX) as it does not see the split supporting decarbonisation to meet targets of the Paris climate agreement.

However, Morningstar recommended investors vote for the split.

HESTA, which has a 0.36% stake in the power producer, joins tech billionaire Mike Cannon-Brookes, who has an 11.3% stake, in opposing the split.

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Shareholders are due to vote on June 15 on AGL’s plan to split into two companies. The split will form AGL Australia, which will be the country’s largest energy retailer, and Accel Energy, the country’s largest power producer. Accel will inherit AGL’s coal-fired power stations and the mantle of Australia’s biggest carbon emitter, according to government data.

The plan must be approved by 75% of the shares voted, but typically not all shareholders vote their stakes, meaning Cannon-Brookes doesn’t need much more support to successfully thwart the split.

“The AGL events represent a turning point in active ownership in this country. Shareholders are pushing for greater action on climate change and a faster transition that aims to strengthen the company’s ability to create long-term sustainable value,” HESTA’s CEO said. Debby Blakey said in a statement.

AGL reiterated that its plan is the best path for the company.

“The split…will allow AGL Australia and Accel Energy to responsibly accelerate the decarbonisation of Australia’s energy system, faster than could have been achieved as a single company,” AGL CEO Graeme Hunt said. in an emailed statement.

Morningstar on Tuesday recommended shareholders back the split, backing management’s view that the two separate companies would be better able to adapt to the changing energy market, with separate balance sheets.

“There is a very clear and concrete reason to demerge – banks no longer want to lend to coal-fired power plants,” Morningstar said. However, he added that Accel’s low-cost coal supply would make it a “cash cow”.

(This story corrects title to insert word “split.”)

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Reporting by Sonali Paul; Additional reporting by Harshita Swaminathan; edited by Uttaresh.V and Christian Schmollinger

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Dolores W. Simon