As Tegel reports strong demand for its shares ahead of the firm's stock exchange float, market sources are warning retail investors to approach the deal with a healthy dose of caution.
The final pricing of the chicken producer's initial public offering will be set through an auction-style bookbuild process with fund managers and brokers today and tomorrow.
An indicative price range for the shares of $1.55 to $2.50 was released on April 1, giving the Auckland-based company - majority owned by Asian private equity investor Affinity Equity Partners - a market value of up to $636 million when it lists on the NZX and Australia's ASX on May 3.
A Tegel spokeswoman said over $200 million in binding demand had been received from retail brokers ahead of the bookbuild, which opened at 10am this morning and is scheduled to close at 1pm tomorrow.
"With the combination of early institutional bids and broker firm demand, the book is now open and covered," she said.
The spokeswoman said the offer's joint lead managers were pleased with the outcome of the retail broker process, with strong demand on both sides of the Tasman.
"Key elements that have resonated with retail in particular were around the strength of the business positioning, high dividend yield, quality of management and familiarity of the brand."
Retail investors are, however, expected to face heavy scale-backs in their share applications.
Despite strong levels of interest in the offer, local market sources still had concerns about some aspects of the outlook for Tegel's business.
"There is good interest at the low end of the [price] range," said one investor, who requested anonymity.
"People are really struggling with the higher end."
He said Tegel's growth story around a push into new international markets, including South Korea and Japan, was one area of concern, particularly given profitability in overseas markets was no better than in the domestic business.
"People are a bit anxious about paying [a higher price in the offer] for that - that's for sure."
A number of recent New Zealand sharemarket floats have performed poorly post-listing and the source said retail investors should "learn from some of the previous IPOs".
Listings backed by private equity investors have also been attracting scepticism following this year's collapse of electronics retailer Dick Smith, which listed on the ASX in 2013.
"There is certainly still a significant lingering distrust in markets of private equity and private equity sell-downs," said another source, who also didn't want to be named.
"[Retail investors] should do their own work and take the advice of their broker ... and think about where their broker is coming from."
Still, the source said there was "clearly sufficient demand" for Tegel to get its deal over the line.
"The price sensitivity of that demand will be the interesting thing and what that means for after market performance," he said.
The offer will raise between $299.1 million and $344.4 million.
More than $130 million of the cash raised will be used to repay bank debt, while up to $163 million will repay shareholder debt.
The remaining $22.5 million to $25.3 million will cover IPO costs, including an $8 million bonus for senior management.
Affinity Equity Partners will sell around 30 per cent of its existing 87 per cent stake through the deal.
Tegel has forecast net profit to rise from $10 million in the year to April 24, 2016, to $44 million in the following 12-month period, thanks largely to decreasing finance costs.
The deal is being managed by Deutsche Bank/Deutsche Craigs, Goldman Sachs and First NZ Capital.