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Current as of 01/07/16 05:59AM NZST
Money Editor for NZ Herald

Warning on Mighty River float's big cut

Analysts say regulatory uncertainty likely to have adverse effect on company's value.

The Mighty River Power share offer was put on hold overnight. Photo / Brett Phibbs
The Mighty River Power share offer was put on hold overnight. Photo / Brett Phibbs

Labour's proposed shake-up of the energy sector could slash up to 20 per cent off the value of Mighty River Power although analysts rate the chances of the Opposition's plan going ahead at less than 50 per cent.

Yesterday the Government filed a supplementary disclosure to the Mighty River Power share offer to take into account possible additional risks to investors that electricity reform under a Labour/Greens government could pose.

The Mighty River Power share offer was put on hold overnight and will reopen for investment this morning. Those who have already bought in will have the chance to change their minds and get their money back over the next five working days.

The original prospectus' indicative share price range of $2.35 to $2.80 valued the 49 per cent stake in the company the Government plans to sell at between $1.6 billion to $1.9 billion - meaning a 20 per cent cut could wipe up to $780 million off the total value of the company.

Milford Asset Management analyst William Curtayne said the Government had done the right thing by releasing the supplementary disclosure as it would make things clearer to the public.

But he said it was likely to reduce both retail and international demand for the shares, putting its price in the mid to lower range of the prospectus.

"The guys that were feeling nervous before - this will tip the tables against them signing up."

Curtayne said it was not uncommon for a supplementary disclosure to be released but the event was not normally so material.

"This is very material. It's normally at the margins. We are talking about something of massive valuation importance."

Curtayne said he was factoring in a 30 per cent earnings downgrade and up to 20 per cent off the total value of the company.

The regulatory risk was much higher than concerns relating to the Tiwai Point aluminium smelter closing, he said.

Analysts said the key phrase in the document was that the regulatory uncertainty was "likely to have a material adverse effect on the value and market price of the shares".

BT Funds Management's Matt Goodson said the supplementary paper may result in some retail investors pulling out.

Goodson said shares in Contact Energy and TrustPower had been sold off but they were now finding a base after a 5 to 10 per cent decline.

"We are still working out our bidding range ... ," he said.

"But it's fair to surmise Mighty River Power is worth a little less now than a week ago."

Devon Funds Management's Phillip Anderson said the level of uncertainty around Mighty River Power had increased but it was a good sign that the pricing range had not been altered from the $2.35 to $2.80 spelled out in the prospectus.

What it means?

*The regulatory risk from the Labour/Green party proposal is likely to have a material adverse effect on the value and market price of the shares.
*Investors who have already bought shares can get their money back in the next five working days if they have changed their minds.
*The offer still closes to retail investors on May 3 at 5pm.

- NZ Herald

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