Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald's Money Editor

Stock takes: Fast-track

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The Government wants to sell down up to 49 per cent of state-owned power companies. Photo / Simon Baker
The Government wants to sell down up to 49 per cent of state-owned power companies. Photo / Simon Baker

The investment industry is speculating over whether the partial sell-down of state-owned enterprises will be fast-tracked to ensure they go ahead before the next general election in 2014.

The Government wants to sell-down up to 49 per cent of Meridian, Mighty River Power, Genesis Energy, Solid Energy as well as lowering its stake in Air New Zealand.

The Government's public information website states that it plans to conduct the five separate share offers over a period of up to five years.

Opposition to the sell-downs is very strong from the political left and if National lost the election or had to negotiate with a minor party to form a government, it could lose the ability to sell down the assets.

Mighty River Power is expected to be first off the blocks at the end of September.

Next year could see two more floats pushed through and another one at the start of 2014.

Air New Zealand is likely to be last or left out altogether because of the ongoing turbulence in the aviation sector. A faster sell-down would be music to the ears of the investment industry.

BUSINESS END

Looks like the last four months of the year will be the busiest for New Zealand's capital markets with the Mighty River Power float and Fonterra's Shareholders Fund expected to go live following the approval of Trading Among Farmers this week.

The TAF vote was passed by 66 per cent, well above the 50 per cent it needed but it's not being perceived as a strong mandate by the investment industry to let outside investors get a share of the dairy action.

Industry players would have preferred to see a vote pass over the 75 per cent threshold.

The new publicly tradeable fund is expected to be listed on the NZX with a ticker code of FSF somewhere between mid November and mid December.

An investment prospectus could be out as early as October.

The launch window is designed to fit around the public availability of Fonterra's full-year results and the typical timeframe farmers have to enter or exit TAF based on an increase or decrease in milk supply.

But Fonterra's advisers have already admitted the timing is tight.

Preparation of the offer documents and prospectus only began last month.

"While no issues have been identified at this early stage, the timetable for completing the required offer documents is tight and will require significant management time," company documents state.

FONTERRA'S BLUEPRINT

There is already an unusually large amount of information out on the fund as part of a blueprint document released in May so the prospectus isn't expected to include a lot of new details.

The main areas of interest will be performance forecasts and the potential risks to investors.

The blueprint does reveal some interesting factors about the new fund.

The manager of the fund will be a company wholly owned and controlled by independent trustee - Trustees Executors - with a five member board.

Two of the board directors will be Fonterra directors while three will be appointed by fund investors.

The fund is expected to be a minimum of $500 million worth of units, placing it around the middle of listing size for the NZX 50.

Interestingly the fund may also be listed on the Australian stock exchange, possibly at the same time as the NZX listing.

The blueprint states that this may prove beneficial by making it easier for Australian suppliers to buy units encouraging them to "feel more linked to the Fonterra family".

OUT-CLAUSE

Fonterra also retains an out-clause on the fund for up to two years after its launch if it doesn't think it is working.

"Termination would occur within 12 months of notice being given," its blueprint states.

However it has warned farmers that forcing unit holders to sell would be costly and need to be at a price that "reflects the hassle, uncertainty and other costs of an early termination".

Unit holders will also be able to liquidate the fund by an extraordinary resolution.

Price it seems will be the key determining factor as to whether many of the institutional investors buy into the fund.

The price will be set through a book-build process where investors are invited to submit bids at various prices within a set range.

The unit price is expected to be around $4.50.

CASHING IN

Milford Asset Management has taken advantage of Diligent Board Member Services' rising share price to sell down some of its stake in the business.

The fund manager looks after money for different investors and while it reduced the overall share of its investment from 8.95 per cent to 7.62 per cent last week, Milford's own growth fund increased its stake slightly from 3.85 per cent to 3.89 per cent.

The biggest reduction in shareholding was in the pool of money it manages on behalf of the New Zealand Superannuation Fund which dropped from 3.97 per cent to 3 per cent.

Diligent, a technology company which provides board reports in digital form, has been the best performing stock on the NZX this year.

Yesterday its share price closed up 15c at $3.70.

POWERING DOWN

Morningstar has cut its profit forecasts for Contact Energy due to concerns over excess supply in the wholesale energy market and cut-throat retail competition.

Analyst Nachi Moghe has lowered his net profit forecast for the company's 2012 financial year from $169 million to $157 million and its 2013 expectation from $225 million to $197 million.

In a note, Moghe said the company had benefited from a rise in wholesale prices which touched a high point in May and a recovery in margins from its retail business.

But he said Contact's margin recovery had not made up for its disappointing first half performance. Moghe remained wary about sustainability of the price increases due to excess industry supply.

"We think retail competition will continue to remain cut-throat and margins are likely to remain depressed," he said.

Morningstar has a fair value estimate for Contact of $5.50 per share. Its share price has trended downwards since October when it was at $5.65. Yesterday it closed up 9c at $4.85.

TOWERING CHALLENGE

The board of listed insurer Tower is believed to have received the major recommendations regarding its strategic review from Goldman Sachs but isn't expected to share its finding with the market any time soon.

Chief executive Rob Flannagan said the board had been presented with a lot of information around the review which it was now deliberating on. But it had not reached a "landing" point yet.

Stock Takes understands there may be plans to sell off the life insurance business. But Flannagan said no decision had been made on selling anything yet.

Tower's shares closed steady on $1.57 yesterday.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald's Money Editor

Tamsyn Parker is the NZ Herald's Money Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She is passionate about helping readers learn more about to make their money work for them.

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