Money Editor for NZ Herald

No time wasted on Meridian sale

Meridian Energy's Manapouri hydro station supplies power to the Tiwai Pt smelter near Bluff. Photo / Supplied
Meridian Energy's Manapouri hydro station supplies power to the Tiwai Pt smelter near Bluff. Photo / Supplied

The Government will waste no time selling down Meridian Energy with Treasury officials expected to meet investment bankers on Monday in a beauty contest designed to decide who will help float the country's largest power company.

As expected, Finance Minister Bill English yesterday confirmed Meridian will be the next on the block in the Government's partial privatisation programme.

The exact timing of its sharemarket listing has yet to be confirmed but is widely expected to be in October.

The Treasury's most recent valuations released in January put Meridian's total value at $6.58 billion - nearly double that of Mighty River Power. A 49 per cent stake could potentially be worth $3.2 billion. If successful it will be the largest float conducted in New Zealand.

Mark Lister, head of research at Craigs Investment Partners, said Meridian would be the largest company on the New Zealand stock exchange based on current share prices.

The country's largest listed company, Fletcher Building, yesterday had a total market capitalisation of $5.96 billion.

"It makes it a bigger job. You've got to raise over $3 billion. But having said that, I would have to say the challenges that were thrown up through Mighty River Power - there are not many more that could come," Lister said.

Mighty River Power attracted 440,000 pre-registrations ahead of its listing but just 113,000 ended up buying shares.

"It's difficult to put a number on it but certainly a number of those people would have been spooked by the Opposition's power policy plans. Now they will have seen Mighty River Power did list, did raise the money and its price went up."

Lister believed a lot of people would have taken a wait-and-see approach knowing that a second one was in the offing.

"It could put the Meridian float on a better footing."

The Middle East

Brian Gaynor, executive director at Milford Asset Management, said he never expected all of the 440,000 who pre-registered for Mighty River to buy shares but had expected around 220,000.

He predicted that if Mighty River's share price sat around $2.65 by September, there would be a substantial increase in those who bought shares in Meridian.

"If the MRP share price is anything above $2.65 they will get a lot more interest."

Rob Cameron, head of the Capital Markets Taskforce, and one of the key bankers behind the float of Telecom, predicted there would be plenty of demand.

Cameron said people needed to see the size of Meridian in the context of recent activity in New Zealand's capital market where $4 billion in capital had already been raised in the past six months.

When Telecom floated in 1991 $1.3 billion was raised from a market when the total market was worth around $28 billion.

Meridian's $3 billion would be raised in a market worth $60 billion. Cameron said the timing was also better as New Zealand was still in recession in 1991 whereas now the country was heading out of recession.

He suggested Meridian could be floated in two tranches similar to how the Australian Government floated Telstra to ease the pressure of finding all of the money at one time.

The Government has so far given no indication that it will take this option but prospective investment bankers are expected to raise it as a possibility.

Meridian chief executive Mark Binns took charge of the company at the beginning of last year to help prepare it for listing.

He said yesterday Meridian would continue to work closely with the Government to prepare for the share offer.

"Today's announcement provides certainty for our company. We are well prepared and look forward to the opportunity."

Firm has given more than $3.2b to Govt since 2001

Meridian Energy is the country's biggest electricity generator but it does rely on rain falling and the wind blowing.

It has seven hydro dams in the South Island and four wind farms throughout New Zealand, a major wind farm investment in Australia and smaller commitments to solar projects in the US and Tonga.

It has long been regarded as the "crown jewel" of the state owned enterprises and since 2001 has returned more than $3.2 billion to the Government.

Its Manapouri power station supplies the Tiwai Point aluminium plant and although the future of that contract is in doubt, the state-owned enterprise could sell its electricity for a higher price to other customers if the smelter contract falls through. Some investment would be needed in transmission infrastructure to ship power from the isolated region.

Former Fletcher Building executive Mark Binns took over as CEO early last year and has cut back on some non-core activities. Meridian and its online subsidiary Powershop retail electricity to about 285,000 customers.

Top firms by market cap

• Fletcher Building $5.96b
• Telecom $4.5b
• Auckland Airport $4.1b
• Contact $3.95b
• Ryman $3.2b

- NZ Herald

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