Contact shares for mums and dads cut

By Mark Reynolds

The number of shares in Contact Energy to be sold to the public has been halved, in order to reduce their availability and ensure sustained demand from institutional investors when the company lists on the stock exchange in May.

The Government has consolidated Contact's shares by reducing the number on issue from 1.2 billion at the end of the company's September financial year to 603.5 million now.

The shares were consolidated on the advice of the share broking firm advising the Treasury on the sale - ABN Amro Rothschild, a source close to the sales process said. AAR advised the Government that reduced liquidity in Contact would create more tension in the marketplace when the company listed, and this would support its price.

The consolidation means there will be 362 million shares available in the initial public offering to the public. That compares with the 241 million shares the Government sold to Edison Mission Energy of the United States on Monday.
Edison paid $1.2 billion for its 40 per cent stake, or just over $5 for each of the consolidated shares.

The exact sale price for the public issue has not yet been decided, but it will be much less than what Edison paid. Brokers polled by the Business Herald said they expect the shares sold in the public offering to have an issue price of $3.60-$3.80 each.

That would mean the sale of Contact would raise the Government a total of $2.5-$2.6 billion. That compares with earlier estimates that Contact's sale would raise $1.5 billion.

The higher sale price would allow the Government to book a profit of $1.62 billion-$1.72 billion on the deal. It would use the proceeds to repay debt.

The minimum parcel of shares to be sold to the public is likely to be 400. That means the 250,000 people who have priority registered for a slice of the company will be able to buy 500 shares in the company, because they are entitled to 25 per cent more than the minimum parcel.

The exact price paid in the public offering will be calculated once the public offer has closed. Investors have to send in a cheque to subscribe for shares and will receive an allocation from the public pool.

At $3.60 a share, a minimum allocation would cost $1440, while a priority registration entitlement of 500 shares would cost $1800.

If just half of the 250,000 people that have priority registered apply for shares in the company and get the minimum number of shares, then at least 62.5 million shares in the public pool will have to be put aside for them.

It is likely that no more than 300 million shares and less than $1 billion of the company will be available for larger investors.

With an initial value of more than $2.5 billion, Contact Energy will be the third-largest company listed on the stock exchange, behind Telecom and Carter Holt Harvey.

Its sheer size means institutional investors, such as superannuation fund managers and insurance companies, who benchmark their funds to market-capitalisation indicators, will have to own a significant amount of Contact. With fewer shares on issue, they will have to bid aggressively to secure their slice.