Investors to pay 60% of Meridian offer price in first tranche

The government will sell down its holding in Meridian Energy via instalment receipts as investors pay 60 percent of the offer price in the first tranche with the aim of a listing in early November, Prime Minister John Key says.

After the lacklustre stock market performance of MightyRiverPower, the government is betting that instalment receipts will ensure the market can digest the sale of the biggest state-owned power company.

The second payment for the shares is due 18 months later but in the meantime, shareholders will be entitled to all of the dividends, enhancing the stock's dividend yield initially. The second payment would be made after the next election.

The government will also set a share price cap for New Zealand retail investors, giving certainty about the maximum price they will have to pay. It also means institutional investors could potentially end up paying more than retail investors.

Meridian is the second of four SOEs plus Air New Zealand that are slated for sell down under a government policy to raise as much as $7 billion to repay debt and seed its Future Investment Fund to help fund schools, hospitals and transport infrastructure such as KiwiRail. Genesis Power is most likely to be next out of the blocks. Air New Zealand could follow, though coal miner Solid Energy is being restructured to return it to profitability before it will be considered.

The details were announced in a joint media conference by Key, Finance Minister Bill English and State-Owned Enterprises Minister Tony Ryall. They said there would be no sale of Genesis Energy this year.

Meridian was last independently valued in 2011, at $6.5 billion, suggesting its value now may be around $6 billion and could yield around $3 billion in a 49 percent float. That makes it the jumbo new listing for the NZX and on the market operator's estimate would generate $450,000 in annual fees.

The government's determination to push the sale forward may have influenced its decision to provide a $30 million subsidy to the Tiwai Point aluminium smelter, owned by Rio Tinto and Sumitomo, and Meridian's biggest customer, in exchange for keeping the plant open at least three more years.

ANZ New Zealand, ASB and Forsyth Barr have been hired for the retail syndicate part of the sale. They will work with the joint lead managers, Craigs Investment Partners/Deutsche Bank, JBWere/Goldman Sachs and Macquarie Group, the Treasury said in a separate statement.

Shares of MightyRiverPower last traded at $2.24 on the NZX, below the $2.50 IPO price.

(BusinessDesk)