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MRP shares dip below $2 as English explains asset sales shortfall

Shares of partially privatised power company MightyRiverPower [NZX: MRP] dropped below $2 for the first time since listing at $2.50 in May, as Finance Minister Bill English outlined reasons for cutting the government's expected proceeds from its asset sales programme.

MRP hit $1.99 in early trading on the NZX, while instalment receipts for Meridian Energy dropped to 93.5 cents, compared with their listing price of $1.

The continuing slump in the government-controlled power companies' share price performance comes as English shaves estimates of total proceeds from asset sales from a mid-point of $6.1 billion to $4.8 billion.

That's based, on the assumption it will be able to sell 49 percent of Genesis Energy for between $700 million and $1.1 billion in the last partial privatisation of the government's controversial plan, scheduled for the first half of next year, market conditions permitting.

English told the finance and expenditure select committee the lower proceeds stemmed from shelving plans to sell down cash-strapped coal miner Solid Energy and writing down the value of Meridian.

The Treasury now expects to raise between $4.6 billion and $5 billion from its asset sale programme, where it planned to sell down minority stakes in energy state-owned enterprises and cut its holding in carrier Air New Zealand, having previously targeted between $5 billion and $7 billion. The new forecast will be contained the Half Year Economic and Fiscal Update to be published on Dec 17.

English told Parliament's finance and expenditure select committee the reason for the reduced forecast was due to the removal of Solid Energy from the programme and other developments in the sector, as well as the experience from the partial floats of Meridian Energy and MightyRiverPower, and the placement of shares in Air New Zealand, which raised $3.9 billion.

Solid Energy had been valued in excess of $3 billion and had been seen as a "potentially significant" part of the programme, he said.

"When you take that out and a revision, particularly to the value of Meridian, then you end up with the range that Treasury's given," English told the committee. "Even with the removal of Solid Energy we're at the bottom of that range, so I don't think there's a misalignment of valuation here."

In a hearing immediately following English, Treasury Secretary Gabs Makhlouf told the committee it was clear in hindsight that the Solid Energy board and management took riskier decisions than they probably should have.

"One of the key challenges that we have as aTreasury, but also as a government, operating in the commercial arena, is that commercial activity has risks," Mahklouf said.

"The framework that we operate in New Zealand essentially gives board and management responsibility for running companies and understanding and managing those risks. The extent to which we can be ahead of the game is quite hard," he said.

Mahklouf said he was confident in the quality of advice put in front of ministers in dealing with the company's debt problems, and confirmed to Labour MP Clayton Cosgrove that the Treasury told ministers of its disagreements with the company.

English said the major factor for the difference between the government's valuation of Meridian and market pricing was that the Crown didn't price in expectations around the Rio Tinto contract at Tiwai Point.

"The government valuation didn't have probabilities built into it about the very real chance that Rio Tinto would move out in 2017 or 2018. The market price does," he said.

"That's one of the reasons we float these companies, because market pricing of them is more realistic. As it happens, the values of those companies is less than people thought," he said.

"There was a perception cultivated somewhat by the opposition as well as others that these electricity companies were semi-monopoly cash cows. I think people who invested in them might have a different view now, if they ever believed that one," English said.

(BusinessDesk)

Comments and questions
14

Who is kidding whom....the real Born Losers are the NZ Retirees.

The retirees havent had it too bad. Their lifestyle compared to the same in most other countries has been gold plated.

Its been their poor governance of NZ inc over the past 2/3 decades; primarily under Roger Douglas, that has screwed their retirement.

However, this is nothing compared to what the retirees of the next 2/3 decades are going to have to endure; when the government cant afford to pay pensions.

Check out whats happening to Detroit, and Greece

All New Zealanders have invested in them for decades Bill, as part of an essential national infrastructure, not as a cash cow.
Bit embarrassing explaining to your mates who bought shares what has happened though....

Its becoming quite clear who the previous administration are working for, and its not NZ inc.

As they say all roads lead to Rome.

As soon as Key floats Genesis, his job will be done. Dont be surprised to see an early election, to try and catch out the opposition.

Key will leave NZ shortly after.

The economic gap between the 'haves' and 'have-nots' is widening at a pace faster than any other OECD country. Most recent evidence is the standard of education based on party policitical ideology and not sound education principles adopted by many of the more successful countries. Widely touted to be becuase of the inequalities in society and schools. Charter Schools; yeah right. We all know they only went through because of a pre-election deal 'behind closed doors'.

Re MRP, it’s been a hard costly lesson for mum and dad investors like me. First making a buying decision when the price is not known and then making payment before the price is set, was foolish.

I for one relied on the Government being at least a little bit fair and honest when setting the price for MRP. Key and English are no different to those who screwed investors over 1987.
My retirement savings are now reduced by $6000 since buying MRP shares in the IPO.
I am aggrieved at the outcome. My family will reflect this at election time. Key and English have lost my trust, across the board.

Watch Arty, voting in the opposition party will only mean further drops to the MRP share price.

It's ridiculous that labour/green was allowed to sabotage the stock market and exert the little political influence they have.

Isn't the stock market the place where investors buy and sell shares based on their assessment of risk and return?
So, if the price was affected by what the opposition parties said, that is the machine in motion, It is is not a machine to print money for everyone....

Don't be to disheartened. Just vote centre right to keep out the labour/greens and the fundamentals will right themselves once the politics have been taken out of the equation.

Thanks Mr English for the additional 7c drop in MRP's share price today. Have you even considered what your comments would mean to the stock market?

On the other hand, the board of MRP has done nothing to stimulate its prices. At the end of the day, they are accountable to the company's shareholders for value.

Such a stark contrast to Tenon, Pacific Edge and countless other listed companies whose board are constantly seeking to add value not sitting on their hands scratching their arse with excuses not to act. For those who don't know, I'm referring to Joan Withers' response to shareholders' question about the drop in share price in the recent AGM.

Richard S
You might recall that NZ was virtually bankrupt when Roger Douglas became minister of finance and the moves he made gave us a dramatic increase in the following years as a matter of record. We would otherwise have been another Argentina

ah, but there is a distinction between doing something, and doing something well. If it had been done well, who knows where we would be now.

MRP were over hyped and over priced but if you look at the return on your original investment its still attractive compared to term deposits. Meridian were closer tot he mark but it is probabably the Chorus fiasco that has depressed all stocks where government or regulation can have an unexpected impact. If they all jump 20% over coming weeks most investors will be happy especially me as I have just dipped my toe in the water on two of these three stocks and have orders in for more.
The Green/Labour postering is nothing new and should be taken with a grain of salt. It's politics for gods sake and opposition parties have to say something to be noticed. If you look at the history of other assets sales such as Telecom, Air New Zealand, Transrail, Tower and others, the private sector have destroyed far more shareholders value than the more recent adjustments which are just that - adjustments.

For the record Tenon went from around $3.00 to something like 50 cents and are now just halfway back to their high.

Buy more good stocks while the price is low, average your cost and improve your yield.

MRP were over hyped and over priced but if you look at the return on your original investment its still attractive compared to term deposits. Meridian were closer tot he mark but it is probabably the Chorus fiasco that has depressed all stocks where government or regulation can have an unexpected impact. If they all jump 20% over coming weeks most investors will be happy especially me as I have just dipped my toe in the water on two of these three stocks and have orders in for more.
The Green/Labour postering is nothing new and should be taken with a grain of salt. It's politics for gods sake and opposition parties have to say something to be noticed. If you look at the history of other assets sales such as Telecom, Air New Zealand, Transrail, Tower and others, the private sector have destroyed far more shareholders value than the more recent adjustments which are just that - adjustments.

For the record Tenon went from around $3.00 to something like 50 cents and are now just halfway back to their high.

Buy more good stocks while the price is low, average your cost and improve your yield.