Treasury seeks 'independent advisor' for National's SOE selldown plans as 4 firms work on scoping studies

By Gareth Vaughan

Treasury, which already has investment bankers from six firms beavering away in advisory roles on the National Party's plans to float stakes in four state owned enterprises on the sharemarket, is now looking for another advisor, or advisors, this time to provide independent advice on the sales.

The laying of the groundwork for the potential sell-downs comes with the November 26 general election, where National will seek a mandate for the sales, still the best part of three months away. And further advisory roles are still to come with the actual sales syndicates for each float. Total fees paid to the advisers are likely to be worth tens of millions of dollars based on the predicted NZ$5 billion to NZ$7 billion the sell-downs will raise.

Treasury named Deutsche Bank and its 49.9% owned Craigs Investment Partners as advisers in July on preparatory work it's doing ahead of the potential sell-downs. Since then it has appointed four further firms to do scoping studies on the four firms National proposes to sell stakes in.

Interest.co.nz understands this has UBS working on Solid Energy, Macquarie on Mighty River Power, Goldman Sachs on Genesis Energy and First NZ Capital on Meridian Energy.

'Independent advisor' sought

Treasury is now seeking applications for the role of independent advisor. The firm, or firms, appointed to this role will provide counsel in areas such as the design of and participation in the pre-qualification process for the joint lead managers of the floats and appointment of sales syndicates, "independent quality assurance" of the sales programme advice prepared by  Deutsche Bank and Craigs Investment Partners, and independent advisory services during the consultation and execution phase for each transaction.

The government instructed Treasury in January to conduct preparatory work to enable partial sales of Mighty River, Meridian, Genesis, and Solid Energy and to reduce the Crown’s 74.69% shareholding in Air New Zealand, with the Crown retaining a majority stake in all the companies. The issue of partial SOE sales is shaping as a key election issue,  with National pledging to push ahead with the sales should it be re-elected and the Labour Party strongly opposing National's plan.

Any SOE sell-downs, through sharemarket floats expected to give local investors a leg up over their international counterparts, would happen over a three to five year period starting in 2012. Treasury estimates implementation of this so-called mixed ownership model would free up between NZ$5 billion and NZ$7 billion of capital, to be put towards other areas of government spending.

Touted as a way of boosting "ma and pa" retail investors' investment opportunities away from property and collapsed finance companies, the SOE floats are also seen as a way of kicking some life into a moribund domestic sharemarket whilst the Government still retains control of the companies.

Aside from the expected National election victory, the timing and composition of the sell-down programme will depend on market conditions and the outcome of the scoping studies.

Deutsche & Craigs may be in sales syndicates

Treasury says Deutsche and Craigs haven't been precluded from applying for roles in the sales process itself. Therefore, Treasury needs independent advice on future stages in the project. Treasury will pick one or more independent advisors to advise it on each part of the process.

"The Treasury intends to pre-qualify potential parties for involvement in the sales process before the first transaction, and later appoint sales syndicate members for each transaction from this pool of qualified parties," Treasury says. "The Independent Advisor will have a primary role in the design of the pre-qualification process, and an assisting role in the selection of candidates."

"This is an advisory role where the Independent Advisor will liaise with the Crown Advisor (Deutsche and Craigs) in a review and oversight function."

The role will include providing an independent review of the management of the sale programme by Deutsche and Craigs and the Treasury, review valuation updates from the joint lead managers during initial public offering preparations, advise on certain agreements including offer management agreements, underwriting, and over-allotment agreements, advise on pricing and allocation including price setting and the tactics used to manage sales syndicates during book building.

Deutsche and Craigs will be providing the primary advice in these areas with the independent advisor(s) performing a second opinion oversight role, Treasury says. However, in transactions where Deutsche and Craigs are part of a sales syndicate the independent adviser will review the offer structure advice prepared by the joint lead managers, and advise on pricing and allocation.

A proverbial who's who of the investment banking world have so far thrown their hats in the ring for the SOE sell-down gigs. At least 12 parties, some individual firms and others who paired up, expressed interest in the role secured by Deutsche and Craigs.

Applicants seeking the independent advisory role must submit their proposal to Treasury by noon on September 26, with negotiations with preferred respondents due to kick off on October 7 and the contract starting on October 15.

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