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

Paul McBeth
Wed, 04 Dec 2013

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.


Paul McBeth
Wed, 04 Dec 2013
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MRP shares dip below $2 as English explains asset sales shortfall