The partial float of Meridian Energy is going ahead with the float expected to take place in early November.
Prime Minister John Key today confirmed the Meridian Energy share offer would be concluded and the company listed on the New Zealand sharemarket by early November, subject to market conditions.
“The Meridian share offer – the second in the Government’s Share Offer programme – comes after we successfully floated 49 per cent of Mighty River Power in the first half of this year, hitting our target of an 85 to 90 per cent New Zealand shareholding, and retaining majority Government control,” Mr Key says.
“And the Government remains committed to 85 to 90 per cent New Zealand ownership on the Meridian share offer.”
He expects Mighty River Power, and now Meridian Energy, will benefit from a broader shareholder base, and end up being better, stronger companies for the rigour and transparency that being listed on the sharemarket brings.
“Both companies will also be better off because they will be able to access capital to grow in more ways than companies that are 100 per cent government owned – which is basically from the taxpayer.”
He says the share offer programme is aimed at freeing up between $5 billion and
$7 billion to invest in other public assets for New Zealand and New Zealanders.
“The partial sale of Mighty River Power put $1.7 billion into the Future Investment Fund – and that is money we have been using to buy public assets without having to borrow on overseas markets.”
Mr Key says it should be remembered the whole Government Share Offer programme covers less than 3 per cent of the Government’s total assets.
“It’s smart reinvestment. With so many demands on government funding, these companies can get investment from sources other than just hard-working taxpayers, and taxpayers can get money freed up for spending on other priority projects that they will benefit from.”
Mr Key says he is confident New Zealanders will understand the instalment receipts model being used for the Meridian share offer, which will involve them paying for their shares in two instalments.
“It is not an uncommon model with large share offers. I think New Zealanders will view the ability to pay around 60 per cent of the share price at the time of the IPO and receive full benefits for the first 18 months as a positive feature of this offer.”
He says listing up to 49 per cent of Meridian Energy will also give New Zealanders the chance to invest in another big Kiwi company at a time when many people recognise the value of diversifying their growing savings away from property and bank deposits.
As at June this year, New Zealanders held around $118 billion in bank deposits – around 20 times the expected size of the entire Government Share Offer programme.
The Government will use instalment receipts in the share offer which will allow investors to pay for their shares in two instalments.
Subject to market conditions, the sale of up to 49 per cent of Meridian is expected to be completed, and the company listed on the sharemarket, by early November, Finance Minister Bill English and State-Owned Enterprises Minister Tony Ryall say.
“Listing up to 49 per cent of Meridian on the sharemarket will give New Zealanders an opportunity to invest in another big Kiwi company at a time when many people recognise the value of diversifying their growing savings away from property and bank deposits,” Mr English says.
The instalment receipts, which are fairly common for major initial public offerings in other countries, will mean New Zealand retail investors will need to pay less cash up front when they apply to buy shares. Instalment receipts were used by the Government in the float of Capital Properties in 1998.
“They will allow New Zealanders to pay for their shares in two instalments,” Mr English says. “The first instalment, for around 60 per cent of the share price, will be paid when investors apply for shares.
“The remaining amount, which will be fixed at the end of the share offer, will not need to be paid for a further 18 months.”
Between the first and second instalments, investors will receive the full dividends paid out in that period, which will make the dividend yield – or return on their investment – higher in those first 18 months.
Ministers have decided to use the instalment receipts as an incentive for New Zealand investors in Meridian, instead of the loyalty bonus shares that were used in the previous Mighty River Power share offer.
Mr Ryall says ministers have also confirmed the following decisions for the Meridian share offer:
- A minimum application of $1,000 will apply for the first instalment of shares.
- Given there is sufficient public familiarity with the Government’s share offer programme, there will not be a formal pre-registration process, as happened with the Mighty River Power offer.
- Retail banks ASB and ANZ and sharebroker Forsyth Barr have been appointed to the retail syndicate for the Meridian offer. The syndicate will work closely with joint lead managers Craigs Investment Partners / Deutsche Bank, Goldman Sachs /JB Were and Macquarie to market the offer to New Zealanders.
“Another difference with the Meridian offer is that we have decided to set a share price cap for New Zealand retail investors who take part in the offer,” Mr Ryall says.
“We understand that people like to know the maximum price they’ll be paying at the time they apply to buy their shares.
“Therefore, the cap will be set at the same time that we set the price range, and it will be announced when we lodge the offer document. This will give retail investors more certainty when they apply for shares.
“It also means that if demand is such that institutions are bidding at higher prices than our price cap, then retail investors will get their shares at a lower price than that paid by the institutions.”
More information on the offer and how instalment receipts work is here.