How the Air NZ share sale might go down

Like cats waiting for the cream, every share brokerage firm in town is hanging out for a call from the Treasury to help it sell a chunk of Air New Zealand.

Speculation is rife the government will move quickly to sell down about 23% of the airline in a block trade ahead of a referendum on the mixed ownership of state-owned companies.

Unlike initial public offerings, which can take months to prepare, block trades are usually carried out at short notice and are closed quickly.

Large deals often take place on the weekend to allow facilitating brokers time to unwind their risk before the market re-opens.

But it’s not uncommon for a block trade to occur overnight, particularly given the size of the Air New Zealand stake up for sale and given the likely demand from institutional investors.

With postal voting for the non-binding referendum opening next Friday and closing on December 13, there is still plenty of time to get it done.

What typically happens is the Treasury will give brokers an opportunity to pitch for the job within a 48-hour period.

So, if it wanted to do the trade on a Friday night, firms would typically have to be notified before Thursday so they could get their pitches in.  

While the government is likely to select firms from its pre-selected panel of firms, the process could be influenced by its final decision on how many of the Air NZ shares are offered offshore.

Firms syndicated for the partial asset sales so far include Goldman Sachs, Macquarie, First NZ Capital, Deutsche Bank, UBS, Craigs Investment Partners and Forsyth Barr.

“Everyone is on tenterhooks, dropping pitches left right and centre,” one investment banker says.

“But we’re still waiting.”

The big unknown is how much goes offshore – whether the government will stick to its 85% New Zealand ownership rule (which means 70% of the shares up for sale), or whether it is less picky for Air New Zealand.

Already, about 5.5% of the stock is held in Australia.

If the government does stick by the rules it put in place for the electricity companies, Mighty River Power and Meridian Energy, then it will need stronger local demand from investors.

“That’s when the relative strengths of the broking houses come into play and which firms have curried favour with the Treasury so far,” the banker says.

Any retail investor who does want to buy shares will have to do so through their existing broker.

A broking source says there may not be a large retail component anyway, as institutional investors are likely to step up for this one.

The government may not be looking for “widespread” ownership of Air New Zealand like it tried to create with the energy companies.

“They have tried with mixed success to create an egalitarian share ownership society but, with an airline stock, given the volatility, it’s probably best owned as part of an investment portfolio anyway.

“And hence it’s probably not a bad thing if it doesn’t fall into the hands of first time investors.

“They have to look at everybody but they might be more generous to institutions and sophisticated investors, because there is a lot more risk to this trade.”

At a small discount to Air NZ’s current share price, a sale of roughly 23% of the company would net the government about $385 million.