Meridian share float: $1.50-$1.80 price range

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.