Wellington, Nov 4 NZPA - Babcock & Brown Infrastructure (BBI) is selling 50 percent of Powerco's New Zealand operations to funds managed by Australian investment manager QIC.

BBI said the sale ascribed an enterprise value of $2.05 billion for Powerco's New Zealand electricity and gas distribution business.

QIC head of global infrastructure Ross Israel said Powerco was a strategic core regulated utility.

"As a mature business, we expect it to provide stable long-term returns. We look forward to working with BBI to continue to provide strong service levels for Powerco customers and further grow the business," Mr Israel said.

New Zealand's second largest electricity and gas distribution business, Powerco has more than 400,000 connected customers across service areas covering more than 39,000sq km in the North Island.

QIC, which was established in 1991, has over $A80 billion ($NZ93.3 billion) in funds under management.

The sale was conditional on gaining required consents, including from the Overseas Investment Office, lender consents and other consents relating to the transfer of Powerco Tasmania.

BBI would retain all of Powerco's Tasmanian gas distribution business, which had a book enterprise value of $200 million.

BBI, which bought 100 percent of Powerco in 2004, said it would raise around $400m from the sale with the deal expected to close in the first quarter of 2009.

The energy and transport fund said it would use the cash to retire debt and fund organic growth opportunities across its international portfolio.

The move by BBI to offload a slice of Powerco is part of a restructure announced in May by BBI, which is managed by troubled investment house Babcock & Brown Ltd.

In August, BBI said that following a number of unsolicited approaches it had begun a formal process to identify partners to co-invest in up to 50 percent of Powerco.

The signing of a sale and purchase agreement had followed a competitive sales process.

BBI said the sale demonstrated the underlying value of its portfolio and the valuation gap between asset valuations and the current BBI security price.

After the financial close of the deal, BBI and the funds managed by QIC would share control of the asset.

Ratings agency Standard & Poor's said the sale of the stake would not immediately affect Powerco's ratings.

BBI stapled securities soared after the news, jumping 20.93 percent.

NZPA WGT AAP mfc nb