"Mum and dad" investors will have to pay a total of no more than $1.60 each to buy shares in state electricity generator Meridian Energy.
The retail investors are being offered a mouth-watering dividend yield of 13.4% for the first 12 months based on the $1 per share price they will have to pay upfront.
Based on the full $1.60 price to be paid this still offers an enticing gross yield of 8.4% to 8.9%.
Earlier today Meridian announced a big increase of its number of shares on issue - which in effect had the impact of vastly reducing the price to be paid.
The retail offer opens on September 30 and closes on October 18 ahead of expected NZX listing on October 29.
Based on the price cap price the offer would raise around $2 billion for the Government, but the final price has not yet been set. The price range for all investors has been set at between $1.50 and $1.80 - but retail investors will pay no more than $1.60.
Here are some of the key details:
- Indicative Price Range: $1.50 to $1.80 per Share being the sum of the First Instalment plus the Final Instalment
- Retail Price Cap for New Zealand Applicants: $1.60 per Share
- First Instalment: $1.00 per Share
- Indicative Final Instalment: $0.50 to $0.80 per Share
- Maximum Final Instalment for New Zealand Applicants in the Retail Offer: $0.60 per Share
- Number of Shares being offered: Up to 1,255,870,000 (being up to 49% of the total number of Shares on issue following the Offer)
- Crown shareholding following the Offer: At least 1,307,130,000 (being at least 51% of the total number of Shares on issue following the Offer)
- Indicative market capitalisation: $3,844.5 million to $4,613.4 million ($4,100.8 million at the Retail Price Cap)
- Prospective net debt: $1,120.7 million
- Indicative enterprise value (EV): 11 $4,965.2 million to $5,734.1 million ($5,221.5 million at the Retail Price Cap)
• The First Instalment is $1.00 per Share, payable on Application
• The amount of the Final Instalment will be determined by the Crown after the close of the Retail Offer and the Institutional Offer. Based on the Indicative Price Range and subject to the Retail Price Cap described below, the Final Instalment is expected to be in the range of $0.50 to $0.80 per Share
• The holder of an Instalment Receipt on 4 May 2015 must pay the Final Instalment •
A Retail Price Cap of $1.60 per Share will apply to the Final Price payable by New Zealand Applicants who are allocated Instalment Receipts and corresponding Shares in the Retail Offer and who continue to hold their Instalment Receipts in the same registered name until 4 May 2015. This means that the Final Instalment payable by such New Zealand Applicants will be no more than $0.60 per Share. The Retail Price Cap does not apply to any Instalment Receipts purchased on the secondary market
• Applicants who sell their Instalment Receipts before 4 May 2015 will not be responsible for paying the Final Instalment. It is expected that trading in Instalment Receipts on the NZX Main Board and the ASX will cease on 29 April 2015, being three trading days prior to the Final Instalment Record Date.
Here is the statement from Finance Minister Bill English and SOE Minister Tony Ryall:
The Meridian Energy offer document is now available to help New Zealanders decide whether to become shareholders in the country’s largest electricity generator, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.
The document reveals that New Zealand retail investors who apply under the share offer will pay a fixed first instalment of $1.00 per share, and no more than 60 cents per share for the second instalment 18 months later if they hold their investment.
The final share price is expected to be announced on 23 October, and Meridian is expected to list on the New Zealand and Australian Stock Exchanges on 29 October when up to 49 per cent of the company is floated.
The indicative price range for Meridian shares, when both instalment payments are added together, is $1.50 to $1.80 per share for institutional investors and $1.50 to $1.60 per share for New Zealand retail investors.
Assuming the Government sells the full 49 per cent shareholding, gross proceeds from the first instalment would be $1.26 billion. Total offer proceeds will depend on the final price of the second instalment and the mix of retail and institutional investors.
“The Government remains committed to putting New Zealanders at the front of the queue for shares,” Mr English says.
“The price cap gives New Zealand retail applicants greater certainty around how much they will pay for Meridian shares, which is something the New Zealand Shareholders’ Association advocated.”
The price cap applies only to New Zealanders who apply during the share offer and it guarantees they will pay no more than 60 cents for their second instalment even if large institutional investors pay a higher price.
Retail applicants will need to hold their instalment receipts for the 18 month instalment period to benefit from the price cap.
“During the 18 month instalment period, shareholders will receive any dividends in full,” Mr Ryall says.
Paying in two instalments gives investors a higher dividend yield during the instalment period. Meridian is forecasting an implied gross instalment yield of 13.4 per cent[i] over the first 12 months. This is based on Meridian’s underlying gross share dividend yield for New Zealand retail applicants of 8.4 per cent to 8.9 per cent1 for the same period, which is the level of return if an investor had paid for the shares in full.
“We will be careful to explain to New Zealanders that the instalment payment process is an incentive that gives people an elevated return on their investment because they have only partially paid for their shares upfront,” Mr Ryall says. “Once an investor has paid the second instalment in 18 months, the dividend yield will return to normal levels based on fully paid shares.”
Meridian is New Zealand’s largest electricity generator, using only renewable wind and water resources and producing over 30 per cent of the country’s electricity. It has more than 270,000 connections to homes, farms and businesses, and a track record of strong and stable operating cashflows.
The Meridian offer document was registered with the Financial Markets Authority today.
A ‘consideration period’ has now started and is expected to last to the end of next week. This is a requirement under securities law to allow the FMA to review the document before the offer period officially starts.
During the consideration period, the offer document will be available to New Zealanders atwww.meridianshares.govt.nz. The document will be posted on the website shortly, and New Zealanders can visit the website or call 0800 90 30 90 to order a hard copy.
“People can take this time to read the offer document and start thinking about whether they should apply for shares, but no applications are able to be accepted during the consideration period,” Mr Ryall says.
“The website also has an easy to understand instalment payment fact sheet and information to help people if they would like to get independent investment advice.”
The share offer is expected to open to New Zealanders on 30 September and close at 5pm on 18 October. The institutional offer will take place on 21-23 October.
As part of the Government’s commitment to widespread New Zealand ownership of Meridian, the offer includes a broker firm aspect. From today, brokers will be invited to assess demand from their clients and submit bids for shares. The Government will then choose how many to allocate them.
Labour's SOE spokesman Clayton Cosgrove says that the offer is a "fire sale". Here is his statement:
Meridian is being sold off in a fire sale for $1b less than the $3.1 billion the Government needs to reach its hopelessly optimistic goal of raising $5b to $7b from asset sales, says Labour’s SOEs spokesperson Clayton Cosgrove.
“The Government’s asset sales plan is under crisis management. With Meridian now set to raise $1b less than expected the Government hasn’t got a hope of raising the money it promised Kiwis it would.
“The share price is only $1.50 - $1.80, much lower than the $2.50 for Mighty River Power shares. Given that just half the people who wanted to buy Mighty River shares want to buy into Meridian, it’s no surprise the price is so low.
“This is a fire sale, pure and simple.
“The reason for the low price is that Mighty River shares have substantially decreased in value. The Government can’t risk the same thing happening to Meridian, so they set the price as low as possible.
“The Government was warned by companies such as Macquarie and Forsyth Barr that the price for Meridian would be far lower than expected. They should have called off the sale then.
“The Suzanne Paul-style buy now, pay later scheme will cost at least $40 million.
“The sharemarket is sending a clear signal. It doesn’t have the appetite for more electricity companies.
“The Government is ignoring investors, bankers and the 327,000 people who called for a referendum. They will reject the referendum too.
“Not only is John Key out of touch with the public, he’s even out of touch with his finance mates. Just who is the Prime Minister in touch with these days?
“The asset sales programme is pure ideology and is seriously flawed economically. John Key and Bill English need to take a deep breath, realise that the asset sales programme has failed and put it out of its misery,” says Clayton Cosgrove.