Australian Power & Gas Company Limited (ASX:APK) Secures Major Growth Platform And Announces Entry Into Queensland Market

Sydney, June 10, 2010 AEST (ABN Newswire) - Fast growing energy retailer Australian Power & Gas Company Limited (ASX:APK) is pleased to announce a series of significant developments in the growth of the company. These developments secure the next phase of organic growth as the company can now expand with confidence into the Queensland and New South Wales energy markets.

These new developments will allow the company to increase its growth of customers from the current forecast of 300,000 customer accounts to 450,000 by June 2014. The company has a proven model delivering successful customer growth since signing its first customer in February 2007. Australian Power & Gas now has over 140,000 billable customer accounts, primarily in Victoria and has set its sights on the deregulated Queensland market.

Australian Power & Gas CEO James Myatt said "The market conditions in Queensland and New South Wales have developed such that Australian Power & Gas can now successfully challenge the existing participants and enter these markets with a competitive offering. To enable this market entry and underpin this additional growth we have negotiated significant new funding and energy supply arrangements".

A$18.75M C-Note Funding Facility

In order to fund the accelerated growth profile the company has agreed terms subject to shareholder approval to raise A$18.75M via a convertible note facility. The facility will be available in three tranches of A$6.25M. The first tranche is unconditional and available immediately as a loan that will be converted once shareholder approval is obtained. The second tranche is available from December 1st 2010 to 30th June 2011 and the third tranche is available July 1st 2011 to December 31st 2011 subject to business performance metrics.

The notes will be issued at a conversion price of A$0.50, pay an 8% p.a. coupon rate and are redeemable on December 31st 2013. The notes will have an attaching option for each dollar committed with a strike price of A$0.60 and an expiry of December 31st 2013 and are unsecured.

The funding facility is now in place and the performance of all participants is fully underwritten by Arthur Phillip Pty Limited, the company's long term financial advisors.

This facility has been designed to give the company financial security whilst providing flexibility and the company also has the ability to collapse the facility after the first tranche should a preferable alternate funding arrangement be secured.

CEO James Myatt said "This facility has been structured in tranches that best meet the cash requirements of the growing business. Our goal has always been to have an efficient capital structure and to utilise funding arrangements that support this". "This facility has been well supported by our key partners and it is great to have the continued support of key existing shareholders, suppliers and our receivables financing partner Fortress Investments in this facility".

A$50M Receivables Financing Facility Extended

As part of the market expansion package, terms subject to documentation have been agreed with Fortress Investments to extend the current A$50M receivables financing facility from June 2011 to December 2012. The facility will be extended on the existing core terms and conditions and ensures the company has sufficient working capital to fund the forecasted growth. The existing convertible notes on issue to Fortress Investments will also be extended until December 2012.

Fortress Investments will also participate for A$1M in the company's proposed C-note funding facility.

"Fortress has been a great partner for Australian Power & Gas since the company first started signing customers in 2007, and we are pleased that the strength of the relationship has facilitated the extension of our current arrangements for a further 18 months". "Fortress's commitment to the C-note funding program adds further strength to the relationship going forward". "The Fortress facility which is secured against the company's accrued and receivable accounts provides strong underpinning funding for our accelerated growth plans," said James Myatt.

Wholesale Supply Agreement in Queensland

Australian Power & Gas is also pleased to announce that it has secured a wholesale electricity supply agreement for its entry into the Queensland market. The three year agreement is with a major generator in the Queensland market.

The contract will be a load following hedge arrangement starting in January 2011. A load following hedge provides a fixed price for all electricity supplied irrespective of the wholesale market conditions at the time. This type of contract eliminates all electricity price risk for Australian Power & Gas for Queensland customers. This is the same type of wholesale agreement that Australian Power & Gas has for its current Victorian customer base and which the Company regards as one of its successful foundation tools which enabled the company to successfully manage risk during the early start up stage of growth.

James Myatt said "The risk management of the supply of wholesale electricity is a key component of the energy retail model. Australian Power & Gas has employed a conservative risk management strategy since the business started and the Queensland supply contract continues that strategy". A partnership with a major generator like this is a great development for the Australian Power & Gas Queensland business".

Revised Company Forecasts

In line with embarking on the additional expansion plans outlined above, the company is currently revising its market forecasts based on this accelerated growth plan. The revised and updated forecasts are expected to be released to the market in the weeks following completion of the budget review process.

Contact

Andrew Butler Australian Power & Gas Tel: +61-2-8908-2711 Mob: +61-419-818-801