Meridian share float: $1.50-$1.80 price range

Bill English at the presser (Rob Hosking)

The government has set a price range of $1.50 to $1.80 per share for the share float of Meridian Energy, with retail investors able to pay $1 per share upfront for their first instalment of shares.

The indicative range is $1.50 to $1.60 for individual investors and $1.50 to $1.80 for institutional investors.

The first instalment for all investors will be a maximum of $1 a share with the remainder to be paid 18 months later.

The $1.60/$1.80 price cap will not apply if investors trade the shares before that time - that is, before May 15, 2015.

In other words, if an investor pays $1 for shares when they are floated and sells them before mid-May 2015 the new buyer cannot buy the price cap as well. 

The final share price will be announced on October 23 and Meridian will be listed on both the New Zealand and Australian stock exchanges on October 29.

Meridian is forecasting a gross instalment yield of 13.4% over the first year, based on its underlying gross share dividend yield for retail applicants of 8.4% to 8.9% for the same period - the level of return if an investor had paid for shares in full.

The company is expected to have a  market capitalisation of $3.844-$4.613 billion.

Although officials and ministers are not saying how much the government expects to gather from the share float - the official reason for this reticence is no one knows the split between retail and institutional investors - the likely income from the sale will be in the vicinity of $2 billion.

Income from the first instalment will be $1.26 billion.

The prospectus forecasts ebitdaf (earnings before interest, tax, depreciation, amortisation and financials) of $544.8 million in 2014, rising to $590.1 million for 2014 financial year.

Net profit is forecasted at $187.9 million in 2014 and $221.0 million in 2015.

The float is the second of the government's mixed ownership model programme and has the declared policy goal of increasing the amount of share ownership among New Zealanders.

The first, Mighty River Power, was held earlier this year and the share price of $2.50 has not held, with prices dropping well below that level since the float.

That is one reason for the lower price this time.

The other allied reason is rising political and regulatory uncertainty. There is a large long term question mark over the long term prospects of Meridian's largest customer, Pacific Aluminium's Tiwai Point smelter.

The government provided a one-off $30 million cross subsidy to help keep the smelter open earlier this year but its longer term viablity remains highly dubious.

Its closure would affect not only Meridian but the rest of the electricity sector as Tiwai Point takes 15% of the country's entire electricity output.

Any closure would see a sizeable drop in electricity prices.

Allied to that is the possibility of a change of government and both the Labour and Green parties' plans to return to a centrally planned model of electricity management.

Mighty River Power's price fell most markedly after those two parties announced this plan and it is another reason for the much more conservative indicative price set for Meridian Energy.

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11 Comments & Questions

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"In other words, an investor who paid $1 for shares when they are floated and sold them would could face a large bill of unknown amount if that investor sold shares before mid-May 2015."

I dont think this is right. I think it means the new holder of the shares wont benefit from the price cap, having to pay whater price is set by the institutions.

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You're right, Harvey. Now fixed.

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Retail investors being set up for the next sucker punch?

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It is not compulsory for anyone to buy shares.

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Agreed. So why the tens of millions then spent by the government to entice interest into the stock?

And Mighty River?

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Thoughts on what the high div yield do to MRP price? I think Meridian will be setting mkt expectations.

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This is a bad sale and therefore a bad purchase.

Buyers beware:
this deal is sweetened because of its risks. The sweetening does not reduce the risks.
The risks are related to the RTZ deal and to the forthcoming change of government.
Buyers beware.

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The saying goes: Once beaten, twice shy.....or perhaps most investors never learn,with too much self egoistic pride.

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This is shaping up to be a blinder of an opportunity for retail investors and a brilliant means to tie the hands of a Labour/Greens ("L/G") attempt to introduce price controls in the unlikely event they win the next election. Rationale: L/G's actions have resulted in the Govt selling Meridian below its long term fair value plus the Govt is sweetening the deal with the two stage structure, the high dividends and the price cap. In addition, should the L/G's get in they will face the anger of the public if they introduce price controls and then force shareholders to stump up with the 60cents when their actions will have made the company worth less than the $1.60. I will be selling my MRP and Contact shares and loading up on this opportunity.

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You are an economic traitor

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MRP shareholders have been kicked in the guts.

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