Meridian may be worth $2b less than year ago

Photo / NZPA

Meridian Energy - the jewel in the Government's portfolio of crown assets - may be worth nearly $2 billion less than it was valued at a year ago when it is finally listed.

In its 2012 statement of corporate intent released in September last year Meridian Energy estimated its commercial value to the Crown to be $6.579 billion as of June 30 based on an independent valuation by accounting firm PwC.

That valuation included a 20 per cent premium for full control of the company which cannot be counted in its float value because the Government only intends to sell up to 49 per cent. Taking account of the premium knocks $1.32 billion off the value.

Meridian also wrote off a further $476 million last week after renegotiating its contract for the Tiwai Point aluminium smelter, putting the value at $4.788 billion.

Phillip Anderson, an analyst at Devon Funds Management, said that based on where rival energy companies Contact Energy and Mighty River Power were trading at, the equity value of Meridian was about $4.675 billion.

Anderson said the Tiwai Point aluminium smelter renegotiation and the Greens/Labour policy announcement had wiped nearly $1 billion off the value of the company.

Before those announcements he believed the company was worth about $5.5 billion.

"I think what has changed ... is they [the Government] have come to the realisation they will have to discount more heavily to get it away."

The discounted value comes on top of incentives announced on Tuesday, including the two-stage payment plan and a capped share price for retail investors.

James Smalley, a director at broker Hamilton Hindin Greene, said there needed to be a significant allowance built into the price for uncertainty, given the potential for a change in government at next year's general election.

"The added risk around political change - that could be huge. Quantifying that is quite difficult."

Smalley said the revaluing of the asset would have occurred regardless of whether the company was going to be listed.

He said the Government had to meet the market in terms of valuation because it was trying to sell a large asset within a specified timeframe.

"To a certain degree that weakens the seller's position and strengthen's the buyers'," he said.