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Meridian IPO raises $1.88 bln for govt, shares priced at bottom of range, has just 62,000 shareholders

Meridian IPO raises $1.88 bln for govt, shares priced at bottom of range, has just 62,000 shareholders

Meridian Energy shares have been priced at the bottom of their indicative price range, and the company will have just 62,000 shareholders when it floats on the sharemarket next week.

Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall announced on Wednesday evening the initial public offering of the State Owned Enterprise will raise $1.88 billion. As tipped earlier on Wednesday, the company's shares have been priced at $1.50 each, which is the bottom of the $1.50 to $1.80 indicative range previously set.

English and Ryall said Meridian attracted a different mix of investors from Mighty River Power earlier this year. While demand was "strong and broad based," fewer retail investors bid for larger parcels of shares.
Around 110,000 shareholders bought into Mighty River Power, and some 228,000 bought Contact Energy shares in 1999.

For more on the SOE selldown process see this Double Shot interview with Milford Asset Management's Brian Gaynor.

And here's the full statement released by English and Ryall

Meridian raises $1.88b – NZ’s largest retail investment in an IPO

Meridian shares have been priced at $1.50, raising an immediate $1.256 billion from the first instalment payment with an additional $628 million to come from the second instalment in 18 months, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.

“Meridian will be 86.5 per cent owned by New Zealanders when the company lists on the NZX Main Board next Tuesday, counting the Government’s remaining 51 per cent shareholding. This meets the 85 to 90 per cent New Zealand ownership target set by ministers.”

Based on the full $1.50 share price, the Meridian offer is the largest investment in an initial public offering by retail investors in New Zealand.

“The $1.88 billion that will be raised by the Meridian share offer is a real boost for New Zealand’s capital markets and our economy,” Mr English says.

With more than 62,000 shareholders, Meridian will have the third largest share registry on the NZX, behind Mighty River Power and Contact Energy.

“Meridian has attracted a different mix of investors than we saw with Mighty River Power earlier this year,” Mr English says. “While demand was strong and broad based, overall we saw fewer retail investors bidding for larger parcels of shares.”

Mr Ryall says the $1.88 billion raised from Meridian’s two instalment payments will be allocated to the Future Investment Fund and will be used to invest in the Government’s infrastructure programme.

“Combined with the $1.7 billion in proceeds from the Mighty River Power offer, this will be $3.58 billion over two floats which the Government does not have to borrow to reinvest in new, priority public assets.

“The Future Investment Fund is building new infrastructure around the country and that means jobs for New Zealanders. The Government is delivering on its plan to control debt and successfully set a path back to surplus.

“Scaling of allocations was required across all investor groups, however, New Zealanders were at the front of the queue for shares.

“We have applied a progressive scaling approach to the general offer where larger applications are scaled more than smaller ones.

“Broker firm applications have been scaled on a pro rata basis, as outlined in the Offer Document.

“Overall, 95 percent of retail applications will receive at least 90 percent of the shares they applied for.

“Applications from New Zealand and offshore institutions have also been significantly scaled back. Confirmations of allocations will be sent to institutions over the coming 24 hours.

“Meridian will list on the NZX main board at 1pm next Tuesday with an indicative market capitalisation of $3.84 billion, making it one of New Zealand’s largest listed companies,” Mr Ryall says.

Details of the retail allocation policy are attached. The allocation table will allow investors to work out their expected share allocation. All investors who applied in the general offer will be able to confirm the details of their allocations on Friday by calling the call centre (0800 90 30 90) or, if they applied online, visiting the website (www.meridianshares.govt.nz). In addition, an email will be sent on Friday to those investors that provided an email address advising them of their exact allocation. Investors who applied through a broker should contact their broker.

Meridian share offer – at a glance
Share price $1.50
First instalment price (paid at share offer) $1.00
Final instalment price due in May 2015 50 cents
Proceeds
Proceeds of first instalment $1.256b
Expected proceeds due from final instalment (May 2015) $628m
Total proceeds to Crown from Share Offer $1.88b
Ownership
Total NZ ownership (incl 51% Crown) 86.5%
Individual New Zealand shareholders 62,000 (provisional subject to settlement)
Retail investors
Retail investors (first instalment) $749m
Proportion of shares on offer 59.7%
Institutional investors
NZ institutions (first instalment) $160m (12.7%)
Offshore institutions (first instalment) $347m (27.6%)
Note: numbers are provisional until settlement
General Offer applicants – scaling policy
Given the strong level of demand, progressive scaling has been applied. This means that larger applications are scaled more than smaller ones.
Overall, 95 percent of retail applications will receive at least 90 percent of the shares they applied for.
New Zealand retail applications
How your application will be scaled: You will receive:
First $2,500 The full amount you asked for
From $2,501 to $10,000  90% of what you asked for
From $10,001 to $15,000  85% of what you asked for
From $15,001 to $20,000  75% of what you asked for
From $20,001 55% of what you asked for

Individual investors will receive confirmation of their allocations from Friday 25 October 2013.

Broker firm applicants – scaling policy
Broker firm applications have been scaled on a pro rata basis, as outlined in the offer document. Broker firm client allocations have been scaled back by 10%.

We welcome your comments below. If you are not already registered, please register to comment.

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42 Comments

So, the flagship economic policy sinks the Government.

Lets see how the soon to be referendum goes......could well be a sharnhorst moment (blew up and sank fast, hardly any survivors).  I'd wonder on the Govn surviving the next election if they lose this, pop goes any credibility...
We shall soon see what the voter thinks...
regards

Sinks?  A week is a long time .... just ask Len...and the 'lection is 14-15 months away. 

Check your calendar! 15 months is late January 2015!  The election can't realistically be more than 13 months away and more likely 12 months away!  Which means the election campaign could be at most 10 and a half months away (or maybe much less if its like 2002!).

Sure sounds like a failure to meet promised returns to me.

Selling down state owned assets to get some ready cash to go on a vote buying splurge before the next election is 'economic policy'? Kate, you're being too kind.

It's gonna be spent on Education premises and Health (like, Burwood Hospital's $0.6 Billion revamp here in Chch).
 
Sounds like capital-for-capital to me. 
 
Vote buying, the likes of zero-interest student loans, WFF, WFF extension to beneficiaries, more rental supplements to help the perpetual strugglers,  is a Lab-Green sorta thang.
 
Still, whatever floats yer boat, especially if'n yer Economically Challenged.

The single biggest blocks of spending are schools and hospitals. The budgeted spending was based on the sales process raising 6 billion. It is looking like 5 billion is being very, very optimistic.
The government has also been tacking on odds and ends to the fund, which as it is money spent now, must be reducing the final amount available for the declared goals- for example (as I understand it) the $40 million for the Mighty River Loyalty scheme comes from the fund, $100 million for Solid Energy.

Hey, I'm not picking sides here. Both sides are just as bad at this game. And I'll give National some credit here. At least they tested the waters early on with proposing mining here and mining here etc. Too unpalatable for the NZ masses so they stepped away from that. And so where to? Starting to scrape the barrel it seems for National's slogan 'Brighter Future' or whatever it was we were going to get.
And if the money grabbed so far is looking well short of the suggested war chest they were going to build from these sell downs, well then, who's economically challenged?

WM. Sounds to me like trying to sell us gilt 17% income generating assets that we already own and giving the money to Fletchers to build depreciating assets. Read Brent Sheather's relevant and excellent NZ Hearld article in their archive.
Regs. EP

On morning report this morning Bill English responded that it was "not necessarily" a failure.
Even if you believe that the government should be selling all its assets, you probably would also agree that it should be entering the market with better projections than the completely useless ones it released earlier on its estimates of price and number of people buying.

I think we can all agree that the Meridian share float went off rather well , considering the circumstances ....
 
... the IPO was hampered by the Mighty River mis-pricing .... And investors have already pumped alot of cash into that company ...
 
Plus the idiotic antics  of the two Egyptian swimmers , Cunliffe & Norman , didn't help ...
 
... and , of course , the real NZX action has been on growth stocks , XERO & Pacific Edge , not on slumbering zero growth old electricity producers ..
 
Yes , all and all , Wild Bill can be well pleased with the Meridian IPO ... onwards with the remaining SOE sales ...

think we can all agree that the Meridian share float went off rather well , considering the circumstances ....
 
For whom? I hardly believe those in government advocating the veracity of this exercise for investors and public alike stand on the shoulders of investment giants. In fact I believe they are all dwarfs standing on each other to pay money away to third party invesment banking apparatchiks.

You're welcome to your opinion ... I'll happily stand by mine ...
 
... for what it's worth , I'm not going within cooee of any SOE stocks  ..... the Gummster needs a little spice & excitement  ...
 
But some folks will relish the steady stream of dividends ... good for them ....

You're welcome to your opinion ... I'll happily stand by mine ...
 
Yes indeed - but given my trading parameters seeking losses is not an option. The risk required to recover from them is too great in a QE dependent universe.
 

Why would you invest in shares when you get no tax breaks unlike rental property.

As far as I know ( which isn't saying a whole lot ) you can get the same tax breaks on shares , as you do on property ...
 
... the subtle difference between the two asset classes is that banks will allow you to leverage much higher on property than on shares ...
 
In fact , nip down to your local bank , and inform them that you wanna loan to buy some listed shares .... then count the seconds before they turf you out into the street !

Not so true - I believe even marked to market capital values above book price get taxed at marginal income tax rates. This is certainly the case for fixed income securites - even government stock purchases below par get taxed on an annual accrual basis to par at maturity at the same income tax rates. It's not a level playing field.
 
In respect of margined security purchases through the local bank, ANZ Australia is upfront but cost heavy - same may apply here. Read more
 
 

I believe Mr Bear is correct in regard to taxation on shares. So long as are you are not deemed to be in the business of share trading,  no tax applies.
Same as for all these rental properties owners, not thier main line of business, so no tax.

I guess my activities border on being characterised as industrial and I don't have the opportunity to fall back on the day job defence.

Yeah, I have the same issues. Hive off the riskiest parts into a LAQC, so if it goes pear shaped at least you can claim the losses back. Things you are confident in for the long term,keep it personal and then no tax.

You can get exactly the same tax breaks on shares if you structure your investment vehicle correctly. 

Since the float went for fire sale prices, the next government now will have the opportunity to buy back at reasonable cost what the thieves sold to the traitors.
Aside, can a citizen bring action to petition for an early election to toss out a corrupt group of banksters, given that impeachment is not an option in NZ?
 

Hardly " fire sale prices " ... both Mighty River and Meridian have been pitched at very high price to earnings multiples of around 20 times ....
 
... I'd pay that for a high flying tech stock , but not for a stodgey old utility !
 
And lest we get too emotional , carelessly biffing around terms like " traitorous " .... remember that the Labour government back in 1989 took Goldman Sachs advice and maximised value by selling Telecom directly to an American consortium , rather tha do an IPO to Kiwi investors , which would've raised only $ 3 billion ,  less than the $ 4 billion they received ..

This is not an issue of politics, but a failure of cross party shared ideological dogma.

.. it is an issue of politics .. we had two elections , both included that the Gnats ( if they won )  would sell down some SOE's to 51 % state ownership  , after the second election ( 2011 ) ...
 
Those two elections were the " referendum " .... the Gnats won ... and now they're delivering on their promise ... easy peasy ... no problem ....
 
.. care to join the Egyptian swimmers Cunliffe & Norman , and be neck deep in denial ?

No that's not quite accurate GBH my good man , at the first election  the SOE's were hardly on the horizon at all for the Nats although top of the agenda on the down low .
It was the Job creation scheme with cycle tracks for the inbound swedish tourists as the shining light ..A brighter Future...? oooooh yes wer'e all a lot brighter now..
Second election , piss poor turn out and SoE's still not the campaign slogan....a piss poor result from an apathetic population  does not a mandate by  implied referendum give.
 Now they are up against it because finally the rank and file realise they are going nowhere in terms of catching up to Australia  in standard of living .....and remu8neration that affords those standards to be reasonable.
 For what it's worth me ol cobber....Labour's not getting voted in  ...the Nats are getting voted out.
I know you can see the subtle difference there...! well the same applies to what JK refers to as a Mandate to sell SOE's.
I must confess though ...! I got me a heaping helping of them on the last day....sitting there thinking ....SOMEBODY STOP ME..! ...the Devil made me do it.....Ha Ha!
 

..SOMEBODY STOP ME..! ...the Devil made me do it.....Ha Ha!
 
Captured by the "closing down sale" bargain syndrome?
 
I knew a persian rug seller in Old Bond Street who was closing down for at least 10 years - tourists knew no better.

Ha Haha...Stephen, nah I think there was more to it than that for me...although I see exactly what you are saying....I keep telling my wife she'd better get in now before I go right off the idea....
 Anyhoo , the strategy for me was that in their desperation, the Nat's would target the bottom end of the scale as opposed to MR, so desperate for this to be success they were offering what I believe was a too good to miss money punt.
And hey Stephen....a fast 40 is hardly going to tie me down ...sport.ha ha..!
 

No - I would have considered it myself as a yield play except the scaled back order size is not worth the hassle after brokerage cuts into the total return equation.

GBH mentioned a P/E of 20 to 1.  Seems dodgy especially given the probable Labour/Green incoming Govn would slash that "profit", so maybe 30 to 1 after Nov 14?   40 to 1?
So maybe the shares are worth 50cents?...so buyers looking for the next sucker?
Not a game I'd play, interesting to watch though.
regards
 
 

... if you've waded through the 228 page prospectous ( I mean how dopey are these guys ... 228 pages ! ...it's only an electricity producer , we're not sending man to the moon here ) , you'll have found Meridian's forecast for a 7.3 cents profit per share for the year to June 2014 ....
 
At the first dollar per share , that'd be a PE of 13.7 , or to reverse that , an earnings yield of 7.3 % .... which is reasonable .... not fantastic , not a bargain , but so-so ..
 
... but at $ 1.50 all found , the PE is 20.5 , and earnings yield of just 4.9 % ...
 
Too pricey for me ! .... and that's before accounting for the anticipated Cunliffe/Norman shenanigans ...

I didnt even bother looking....no point.
So the Green's could 1/2 the profit, easily....and that guts the share price.
For me a Utility = 8 to 1, say after Nov 2014 5 cents dividend = 40cents a share.
Wierd...
and they say markets are rational.  I'd love to know why ppl are buying....
Yes, interesting to watch.
regards

"And lest we get too emotional , carelessly biffing around terms like " traitorous " .... remember that the Labour government back in 1989 took Goldman Sachs advice and maximised value by selling Telecom directly to an American consortium , rather tha do an IPO to Kiwi investors , which would've raised only $ 3 billion ,  less than the $ 4 billion they received .."
 
Darn right traitors who buy what was stolen from us.  1989???  Talk about ancient history to justify new robbery.  Wasn't that by R Douglas, the other disgraced bankster?

... I'm getting this niggly-naggly feeling in me Gummy water that you're against the SOE sell-downs ....
 
Good for you  .... gotta respect the passion of your argument !
GBH

Oh good grief.  As a small-time investor in both MRP and Meridian, I will have paid less for my miniscule investment than I spent just this year on ski passes and a set of Cooper AT3's for the ski wagon.
 
But of course this sorta thread is at least as good an entertainment as watching folks try to ski - I'm not altogether sure which is more fun.
 
Perhaps, BH and crew, ya could consider gettin' some starvin' post-grad Arts students to Act Out the thread, and sell it to the Comedy Channel?
 
Just sayin'....y'all will have gathered that Investment Motivations are many and varied....

.. it's a great shame that Bernard Hickey didn't combine his new political website " Hive " , in with interest.co.nz ...
 
The combustible combination of politics and finance !
 
.. oh what fun we'd have ...

I thought BH ran off to Wellington to be a behind the scenes 'economic/finance' advisor to Cunliffe?
 
The destruction of wealth caused by the Labour/Greens announcement, and subsequent crowing that the partial asset sales were a farce/flop is nothing short of despicable.
Perhaps they are engaging in market manipulation, trying to destroy the share price so they can buy them back cheap I dont know. Or perhaps they forget they actually still own 51% of these power co's. They have certainly hammered the value of Meridian, $6billion down to $3.8billion, I guess the anti asset sales mob could be proud of that.
The commentors above who seem to love property over shares, why do you think you're immune from the Greens wealth destruction policies, no doubt they will be lining up 'those greedy landlords' should they ever get a sniff of power
 

Hee hee.
 
Yes, I can hear the braying now:
 
Munn-nnn-eee  Baaad.
Barrrr-Terrrr Gooood.
 
Or p'raps a song?  'Which Side are you On?'

Yeah Waymad...I couldn't help myself, n Cunny told me he'd give me squint if I needed to unload in 18 months.....nod n a squint...say no more.

My Meridian application will be scaled back to 55%. So if the take up of only 62,000 mum & dad investors was lower than expected, and yet the Government is keen to entice more retail investors, what is the logic to this scaling? Pity there wasn't some indication of this, then I would have applied for double the amount I wanted.

... that's OK , keep some of your cash in reserve for when they float Genesis .