HOLD OR SELL
Preparations for the partial share-market listing of petrol station chain Z Energy raises questions about what will happen to its 17.4 per cent stake in the New Zealand Refining Company.
When Infratil and the New Zealand Superannuation Fund acquired Z Energy from Shell back in 2010 the NZ Refining stake was worth around $190 million with its shares trading at around $4. But in the last three years its share price has slumped. Yesterday its shares were trading at $2.48 valuing Z's stake at $119 million.
If the NZ Refining stake was included in the float, Infratil and the Super Fund would potentially be selling it at a loss. Infratil and NZ Super have proposed selling 40 to 60 per cent of Z.
Depending on how much of Z they sell, the change in ownership could create conflicts over how Z votes on decisions regarding NZ Refining. There is no guarantee potential new owners will have the same view as the current ones on what to do with the refinery.
However, there could also be problems if Infratil and NZ Super held on to the NZ Refining stake as Z would lose any control over the refining part of the distribution chain.
NZ Refining's Marsden Point refinery produces 70 to 80 per cent of New Zealand finished product and is presently owned by all the oil majors.
A spokeswoman for the Super Fund said a decision had not been made about what would happen to the NZ Refining stake.
"The process is still at a very early stage."
Mighty River Power's pre-registration interest must be heartening for the Government.
More than 335,000 people have already indicated their interest with some in the market predicting it will probably get up to 500,000 by the close-off date on March 22.
A key turning point will be topping 390,000 - the number of signatures on the Green Party's petition to stop state-owned asset sales. The National party claims the last election gave them a mandate but given the election was so closely run a high level of pre-registrations will give them added impetus.
Of course, converting high pre-registration numbers to actual share purchases is another thing altogether.
Contact Energy had a very high conversion rate, with around 250,000 people pre-registering and 227,000 buying shares, but there are no guarantees MRP will be a repeat performance.
An important aspect of the sale will be the bonus share scheme which the Government has yet to announce. Contact did not have one of these schemes attached to it.
If 500,000 people sign up for $2000 each - the amount the Government has guaranteed not to scale back if the offer is oversubscribed - then that will be $1 billion already taken care of without going to the local or foreign institutions and KiwiSaver fund managers.
The level of interest from Kiwis raises questions about why the Government needs to sell any of the shares to foreign buyers. Of course the Government would argue it also wants to get the best price for the asset which means shopping it around.
The Government has said it expects 85 to 90 per cent of Mighty River Power to be owned by Kiwis including the minimum 51 per cent retained by the state.
But there are no guarantees what will happen post-float to the level of foreign ownership.
The Government has legislated a 10 per cent ownership restriction on all other investors but what's to stop two or three international institutional investors buying close to 10 per cent each?
Even keeping 85 to 90 per cent in New Zealand hands will mean 20 to 30 per cent of the 1.9 billion portion up for sale could go to foreign investors. That's somewhere between $380 million and $570 million worth.
That only leaves somewhere between $330 million and $520 million for local institutions.
The recent strong placement sales show there is definitely local demand from institutions.
If they are scaled back, and individual investors who want more than $2000 worth of shares are scaled back, that would certainly create demand for shares once they do list, pushing the price up. Cynics would suggest it is all part of the plan to make Mighty River Power appear a success story.
There is still a lot of talk around the market about other placements following the success of News Corp's sell-down of its stake in Sky TV.
Other suggestions of possible sell-downs include Origin Energy selling its 52 per cent stake in Contact Energy.
The Australian company is under financial pressure and last month announced plans to cut 350 jobs in Australia following a near A$2 billion ($2.5 billion) cost blow-out at its flagship gas development in Queensland.
Its net profit was down 34 per cent in its half-year result and the company has forecast a full-year profit fall of between 10 and 15 per cent. But another market source said Origin would not want to give up its Contact stake given the strong earnings it gets are probably helping to prop up its business at the moment.
Also a sell-down of more power company shares amid the government SOE power company floats may be trickier.
Another suggestion is The Warehouse.
Progressive Enterprises still owns just under 10 per cent of the company. It took the stake after it looked like The Warehouse would get into supermarket retailing. But this has gone by the way.
There seems little reason for it to keep hold of the stake now. But any sell-down would likely result in a loss. Progressive bought in to the Warehouse at $6.50 a share, which yesterday closed on $3.71.
Diligent Board Member Services told the NZX this week it could not explain its meteoric share price rise but Stock Takes believes it is linked to chatter on shareholder forums about Diligent being a takeover target.
Diligent's share price rose to $6.46 on Monday - a new high for the company.
Since November last year its share price has shot up, rising more than 70 per cent.
The company has not made any significant announcements during that time and has faced controversy over the way it awarded options to its executives.
It's hard to know if the takeover chatter is believable. Some say the business is attractive because of its high growth and the cash sitting on its books, but others are less convinced.
Wellington brokers Woodward Partners released a note recommending investors reduce their shareholding this week stating that the company had had great growth so far but was slowing as its market matured.
"We believe Diligent Board Member Services is transitioning from a high growth company to a lower growth, higher yielding company. While we forecast revenues will nearly double in FY13, we also believe the future growth rates will reduce."
It is picking revenue growth to slow from 143 per cent in 2012 to just 15 per cent in 2015.
Milford Asset Management, which have been big fans of the stock, have sold down this week reducing their stake from 9 per cent to 6.35 per cent. Diligent shares closed down 4c at $6.26 yesterday.
The lawyer leading a major lawsuit against the New Zealand banks says he hasn't given up on another case he is working on to try and sue the corporate trustees of the failed finance companies.
Andrew Hooker, the Auckland solicitor taking the billion dollar bank claim over allegedly unfair default fees, says he hasn't discarded the corporate trustee case, he just hasn't been able to secure funding for it yet.
Hooker and his Australian backer law firm Slater & Gordon set out to take on the corporate trustees in March 2011 but the case still hasn't got to court.
"We're still gathering information," he told Stock Takes. "We are jumping through a few more hoops to get funding."
But he is also fast running out of time.
These type of pseudo-class actions can only go back six years. Most of the finance companies collapsed in 2007 and 2008.
The bank case does have financial backing through Australian firm Litigation Funding Services.