Plan to set float share price before retail investors have to pay is a good move: fund manager
The Government's move to set the share price for the Genesis Energy float before retail investors have to pay up has won approval from an investment expert but analysts still expect it to be a tough sell.
Finance Minister Bill English yesterday confirmed the Government hoped to sell between 30 and 49 per cent of the country's last state-owned power company.
But in a change from its two previous power company floats, institutions and brokers will bid for the shares before the public offer opens, setting the price for retail investors.
The Government was heavily criticised by retail investors after Mighty River Power's float because they did not know exactly how much they would pay per share until after a price-setting book build was held following the close-off of the general offer.
That frustration was slightly mitigated with the Meridian Energy offer when the retail share price was capped.
But investors still did not know how much they would pay until after the offer closed as the price could have been set lower if institutional investors put in lower bids.
Brian Gaynor, executive director at Milford Asset Management, said the Government had finally got the structure right with Genesis.
"I think it is great. They should have been doing this all along."
Gaynor said the ongoing changes to the Government's floats indicated they had not got it right in the previous floats.
"There is nothing else in life where you deposit $2000 and don't know the price."
Gaynor said the Genesis process would be more transparent and would give investors certainty of price and dividend.
But Philip Anderson, a senior analyst at Devon Funds Management, doubted it would get more retail investors on board.
"They are doing this to try and make it better for retail investors but it's all at the margin.
"I don't think there will be much volume done through the retail offer."
Anderson said Genesis would have to be priced to take account of its assets which include the Huntly Power Station and a 30 per cent stake in the Kupe oil and gas field.
He said both assets had potentially short lifespans compared with hydro stations. "It's got to be cheaper than everything else in the sector by a margin to look attractive."
The Government also said the Genesis offer would include bonus shares like those used in Mighty River Power.
Investors in Mighty River were offered one share for every 25 they hold up to a maximum of 200 bonus shares if they keep them for two years from the float.
Anderson described Mighty River's bonus offer as "measly" and said the Genesis offer would need to be a step up.
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Nick Lewis, an investment banker at Wellington-based Woodward Partners, said the structure was unusual for a float but appeared to make sense.
"I think it acknowledges the fact that the investment community generally may be full up on generator-retailer stock at the moment," hesaid.
"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.
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 sharemarket floats.
But Lewis said the Government's comparison of Genesis to these high tech companies "was like comparing apples with bananas".
English said that, as with the other share offers, New Zealanders would be at the front of the queue and the Government remained committed to at least 85 per cent Kiwi ownership.
He 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.
David Cunliffe - 'I told you so' about Genesis:
Assuming 49 per cent of Genesis is sold, the sale is expected to return about $1 billion to the Government.
English said the revised process would provide more certainty for Kiwi retail investors, because they would know the price from the outset.
- Additional reporting: Jamie Gray of APNZ