Jamie Gray

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

Genesis float unusual but makes sense - banker

The structure of the Genesis Energy float is unusual but makes sense given the complexities of the company, says one investment banker.

The Government today announced its Genesis share offer will proceed next month but it may sell less than the 49 per cent offered if there is not enough demand from potential buyers in a "front end bookbuild".

This time around, the process will be open to both institutions and the broader broking community to create more competition for the shares. The price will be revealed at the start of the offer.

This type of sale offer follows criticism of the other two "back end" book building processes for Mighty River Power and Meridian which saw the price set at the end of the initial public offer (IPO) process.

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Nick Lewis, an investment banker at Wellington-based Woodward Partners, said front-loading was an unusual structure for an IPO but that it appeared to make sense in this case.

"I think it acknowledges the fact that the investment community generally may be full up on generator-retailer stock at the moment," he said.

"It is probably the most challenging company for retail investors to understand,'' Lewis said, adding that Genesis had the most diverse asset base of any of the three state-owned generators to go under the hammer.

On top of its 30 per cent ownership of the Kupe oil and gas field, Genesis has Tekapo A and B hydro stations in the South Island and the Huntly coal and gas station at Huntly.

Genesis also has the biggest customer base of the generator/retailers.

"It's an interesting company but it's going to take some serious analysis to see how this thing performs going forward," he said.

The Government pointed to last year's successful floats of Synlait, SLI Systems and Wynyard as successful examples of front loaded IPOS.

But Lewis said the Government's comparison of Genesis to these high tech companies "was like comparing apples with bananas".

He pointed out that putting a smaller quantity of shares up for sale would not preclude the government down more stock at some later stage.

The Government said its Genesis Energy share offer will proceed next month using a so called "front end" book build process that will see the price revealed at the start of offer and which may involve just less than 49 per cent of the company being sold.

"We want to get fair value for the taxpayer as well as a reasonable price for investors and initial advice is we need to test demand because we don't want to get too low a price because we were trying to sell too much," Finance Minister Bill English said today.

This time around, the bookbuild process will be open to both institutions and the broader broking community to create more competition for the shares.

The front end bookbuild offer follows criticism of the other two "back end" book building processes for Mighty River Power and Meridian which saw the price set at the end of the initial public offer (IPO) process. This time around, as little as 30 per cent of Genesis could be put up for sale.

The Genesis offer is expected to open in the second half of March with the company expected to be listed on the market by around mid-April , subject the market conditions, Finance Minister Bill English said in a speech given in Auckland today.

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"As with the other share offers, New Zealanders will be at the front of the queue for the Genesis share offer and we remain committed to at least 85 per cent kiwi ownership," he said.

English has in the past talked about the need to hit a "sweet spot" in the pricing of the offers to suit the needs of the taxpayer, through the Government, and the investor. Assuming 49 per cent of Genesis is sold, the sale is expected to return about $1 billion to the Government.

The shares will be priced at the start of the offer period, rather than at that as occurred with the previous share offers.

Front end book builds were used successfully last year for the Synlait, SLI Systems and Wynyard IPOs.

English said the revised process would provide more certainty for Kiwi retail investors, because they would know the price from the outset.

For the first time in the sales programme, New Zealand sharebrokers will bid for shares at the same time as institutions, which English said would create stronger competition for shares during the book build.

The Government expects to sell between 30 per cent and 49 per cent of the shares in genesis. When the programme was first mooted, the government said it would offer up to 49 per cent of power companies.

The Government is also expected to use a shareholder loyalty scheme that will be more attractive than the one for 25 scheme used for Mighty River.



Genesis Energy

2012 Revenue: $2.270 billion
2012 Net Profit: $90 million
Government expects to raise between $700 million and $1.1 billion from selling a 49% stake.

Operates a mix of thermal and renewable power stations
with a total capacity of 2141MW:

• Huntly thermal power station - gas/coal.
• Tongariro power scheme, Taupo - hydro.
• Waikaremoana power scheme, Wairoa - hydro.
•Tekapo A &B, Mackenzie Country - hydro.
• Hau Nui, Wairarapa - wind.
• Holds a 31 per cent stake in the Kupe (off the Taranaki Coast) - oil and gas.

Chairman: Jenny Shipley
Chief Executive: Albert Brantley
(Based on Genesis February 2013 figures)


Previously privatised assets:


Mighty River Power

Partially privatised by the National Government in May 2013.
IPO share price: $2.50
Current share price: $2.04 (25/02)
2012 revenue: $1.521 billion
2012 Net Profit: $68 million
Asset sale raised $1.7 billion - government sold a 48 per cent stake.

MightyRiver owns:

• 9 hydro stations on the Waikato River.
• 5 geothermal stations throughout the North Island.
• gas fired power station at Southdown.

Chairman: Joan Withers
Chief Executive: Doug Heffernan
(Based on MightyRiver's 2012 annual report)


Meridian Energy

Partially privatised in September 2013.
IPO installment receipt: $1.00 (final instalment of 50c is due on May 15, 2015)
Current instalment receipt: $1.05 (25/02)
2012/2013 revenue: $2.711 billion
2012/2013 profit: $295.1 million
Asset sale raised $1.83 billion - government sold a 49 per cent stake.

Meridian owns:

• 7 hydroelectric power stations (including Benmore and Manapouri)
• 1 wind farm in the South Island.
• 3 wind farms in the North Island.

Chairman: Chris Moller
Chief Executive: Mark Binns
(Based on Meridian Energy annual report year ending June 30, 2013)


Air New Zealand

Partially privatised in November 2013. Government sold a 20 per cent stake, reducing its holding from 73 per cent to 53 per cent.
Offering share price: $1.65
Current price: $1.74 (25/02)
2012/2013 revenue: $4.618 billion
2012/2013 profit: $182 million
Asset sale raised $365 million.

Chairman: John Palmer
Chief Executive: Christopher Luxon
(Based on Air NZ annual financial results to June 30, 2013)

- NZ Herald

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