Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Strong demand tipped for NZ share floats

Mighty River Power float will begin to fill gap in investment options, says market expert.

Aside from the new listings, there has also been a raft of successful capital raisings on the sharemarket which have revealed healthy investor demand for stock. Photo / Russell Smith
Aside from the new listings, there has also been a raft of successful capital raisings on the sharemarket which have revealed healthy investor demand for stock. Photo / Russell Smith

The past few years have seen some successful floats in New Zealand - notably Summerset, Trade Me and the Fonterra Shareholders' Fund.

Aside from the new listings, there has also been a raft of successful capital raisings on the sharemarket which have revealed healthy investor demand for stock. Although there are exceptions.

Andrew Barclay, managing director Goldman Sachs NZ, which is one of the three investment banks managing the Mighty River Power offer, said the best performing initial public offerings (IPO) are those that contain some common elements.

He lists them as:

•A strong underlying business.

•Valuation based on an appropriately conservative assessment of the company's financial prospects.

•An offer price which balances the desire for the seller to achieve a fair price and the investor to enjoy a positive experience in the secondary market (stockmarket).

•Share registers which have a broad cross section of retail, domestic and international investors.

The Treasury paid close attention to the Queensland Government's privatisation of QR National - a rail company that specialises in the transportation of coal and iron ore throughout Australia - in 2010.

At the time, local institutional investors tended to stand back from QR National, seeing it as being too expensive.

But overseas investors - eager to gain indirect exposure to Australia's resource sector - were more than happy to fill the void.

The resulting price tension meant a successful debut for QR National - now called Aurizon - and the stock has continued to perform strongly.

Foreign investors are likely to end up with a sizeable chunk of Mighty River, even though the company will remain predominantly New Zealand-owned.

Those local and overseas investors who either missed out or who did not get as many shares as they wanted in the IPO are expected to play a big part in the secondary market, which the float's managers expect will provide support for the price once it lists on the NZX.

IPOs generally have a discount built into what their fair trading price is assumed to be, to make them attractive to investors and to ensure a successful debut, which is generally in range of 1 to 10 per cent, and usually at around 5 per cent.

Rob Cameron at merger and acquisition specialist Cameron Partners, which is not connected with the offer, said he expected to see strong demand for Mighty River Power, and any other subsequent power company the Government lists.

Investors have long complained about the local market's size relative to the economy.

"What that tells you is that there is a lot of investment product that is not available to New Zealand investors that are available in other countries, so this [Mighty River] begins to fill a gap."

Investment banking sources have said it looked like Mighty River would be priced at around $2.35 to $2.45 a share.

An auction-style book-building process - where institutions put in their indicative bids - will start tomorrow and a final price will be announced on Wednesday.

Mighty River Power is expected to list on Friday.

Meanwhile, the Treasury is preparing for the next IPOs for Meridian and Genesis Energy, with the Government having said it would like at least one more listing this year.

- APNZ

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