By David Hargreaves
The Government's hard-sell of Meridian Energy has started, with 49% of the SOE to be offered to the public later this month ahead of an expected sharemarket listing on October 29.
The marketing starts today in what can expected to be pretty full on, heavy duty, selling, given some of the difficulties the offer could potentially face getting off the ground.
The Government has released a "next steps" document, outlining proposals and the planned timetable.
Not least of the Government's problems in attracting potential buyers is the fact that Mighty River Power shares, floated in May and raising $1.7 billion for the Government, are currently languishing at just $2.18 compared with their issue price of $2.50.
While the public were initially very keen on the MRP shares - with 440,000 pre-registering interest - just 113,000 eventually fronted up to buy them.
The latter stages of the MRP float and its subsequent listing have been dogged by, firstly the release of a Labour/Greens policy proposing drastic overhaul of the electricity market and secondly by the uncertainty over the future of the Tiwai Pt aluminium smelter, which consumes around 13% to 14% of all New Zealand's electricity.
But the Government's already previously indicated it will be pulling out all the stops for Meridian - the biggest SOE power company - by offering a deferred payment scheme and by ramping up the dividends buyers may get. See here for articles on the partial privatisation programme.
The Australian Financial Review's influential Street Talk column, which has been consistently leaked details of first the MRP offer and now Meridian, was saying last week that Meridian might be offered at a price that gives an underlying dividend yield of about 7%.
However, the nature of the deferred payment, with investors paying 60% of the price initially and then the other 40% in 18 months will give an initial yield of something like 12% to 13%.
Even given such a considerable carrot, estimates of perhaps $2 billion or even less are now being bandied around for what the Government might raise in total from the Meridian float - against earlier forecasts of perhaps over $3 billion.
There is increasing speculation the Government may have to revisit its target of raising between $5 billion and $7 billion from its partial privatisation programme.
The Government says full details of the Meridian offer will be set out when the offer document is lodged on Friday.
Finance Minister Bill English and State-owned Enterprises Minister Tony Ryall said pre-offer marketing would start this evening, "ensuring New Zealanders are aware of the Meridian offer through television, newspaper and online advertising".
Genesis, Air NZ
The ministers also confirmed they were considering options for Genesis Energy and Air New Zealand – two of the other companies in the Government’s share offer programme.
“As the Prime Minister [John Key] said last month, we anticipate that the Genesis Energy share offer will occur in the first half of 2014, subject to market conditions,” Ryall said.
“Preliminary work is underway and will continue over the next few months.”
The Air New Zealand share offer would be different to the others, as it is already a sharemarket-listed company, with the Government holding about 73%.
“What that means is that New Zealanders can buy shares in the company now, if they wish,” Mr Ryall says.
Working it out
“We are currently working through the best way the sell down can occur and we remain keen to ensure that New Zealanders have the opportunity to participate in it. At this stage, no final decisions have been made, including on timing. However, when it occurs we expect it will be a shorter process than that used for Meridian and Mighty River Power.”
- The Meridian offer document will be lodged this Friday, September 20, setting out all the information investors need to make an informed decision about whether to invest. This will include the price range, the price of the first instalment, the capped price of the second instalment and the expected yield.
- After the offer document is lodged, the Financial Markets Authority has around five business days to review the document. This ‘consideration period’ is expected to conclude on September 27.
- New Zealanders will then have three weeks from September 30 to consider the offer document and apply for shares before the general offer closes on October 18. This will be followed by a book-build process where institutions bid for shares.
- It is expected that Meridian will list on the New Zealand and Australian sharemarkets on October 29.
Ryall reiterated that the offer process put New Zealanders at the front of the queue for shares and "will ensure they have easy access to information".
“To help achieve this, a retail syndicate will be marketing the offer to New Zealanders, and they will offer information and advice to their clients.
"In addition, we have included what is called a ‘broker firm’ aspect to the Meridian offer. Under this arrangement, brokers assess demand from their clients and submit bids, and the Government then chooses how much to allocate them.
“Just like the retail offer, this process is open only to New Zealanders and is consistent with our commitment to ensuring 85-90 per cent New Zealand ownership of the shares,” Ryall said.