Jamie Gray

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

Mighty River shares up on $50m buyback news

Mighty River chair Joan Withers speaking at the launch of pre-registration for the Government's share offer in Mighty River Power earlier this year. Photo / Sarah Ivey
Mighty River chair Joan Withers speaking at the launch of pre-registration for the Government's share offer in Mighty River Power earlier this year. Photo / Sarah Ivey

Shares in Mighty River Power gained 5c (2.3 per cent) to $2.25 today after the company announced that it would buy back up to $50 million of its shares less than six months after listing on the NZX.

Shares in the state-controlled power generator and retailer have failed to fire despite a strong showing when they listed on May 10.

The shares were issued at $2.50 and shot as high as $2.73 on their first day. By August they had sunk as low as $2.17.

Analysts said the stock had fallen prey to bad timing - listing around the same time as the release of the Labour-Greens' plan to take control of the electricity market. Doubts about the future of the Tiwai Point aluminium smelter - New Zealand's biggest power user - also weighed on the stock.

Mighty River chairwoman Joan Withers said the board believed that the buyback, representing less than 2 per cent of the company's shares, was a prudent use of capital.

The purchase of up to 25 million ordinary shares could occur from October 15 through to October next year.

"The board's view is that a purchase of our shares, at this time and at current market prices, provides a return above the company's cost of capital and will be value-enhancing for our shareholders," Withers said in a statement.

She said the board had taken into account the company's out-performance against the 2013 initial public offer forecast and the $100m lower than forecast capital expenditure.

Opposition parties said the buyback was an attempt to prop up the company's share price during the Meridian share sale.

Labour's state owned enterprises spokesman Clayton Cosgrove labeled it "an act of absolute desperation".

"Clearly the board could see the writing on the wall and knew the share price would fall even further.

"This is market interference, pure and simple. The Government will be very happy with this act as the falling Mighty River share price is scaring prospective Meridian investors away."

Green Party Co-leader Metiria Turei said the buyback "looks like an attempt to prop up Mighty River's share price ahead of the Meridian sale".

"There clearly isn't a market for the government's share sales. It should cancel the remaining asset sales now."

NZ First Leader Winston Peters said the buyback "smacks of deceit and desperation because Mighty River Power's forecast show that it could sell the shares to pay for dividends quickly, if need be to shore up investor confidence if they suspect Mighty River Power will not perform that well".

"Effectively the taxpayer, in the form of 51 per cent ownership of Mighty River Power, is buying back shares to artificially prop up the company's value and it is probably prompted by their concerns about the effect of the Meridian share float."

Through a spokeswoman, SOE Minister Tony Ryall said the buyback was a matter for the company but it was not an uncommon strategy.

"For example, Air New Zealand did the same in the last year and announced in September 2013 it was renewing its share buyback facility for another 12 months. The buyback has nothing to do with the IPO.

"The Opposition never tires of trying to sabotage the value of these companies to the detriment of every day New Zealanders, just to play politics."

- APNZ

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