Most early buyers stick with float

Photo / Sarah Ivey

First NZ Capital chief says less seasoned investors more likely to be unsettled by Labour/Greens plan.

So far less than 10 per cent of those who bought into the Mighty River Power offer have pulled out as a result of the Labour/Greens electricity market overhaul proposal.

Investors have until May 1 to ask for their money back after the Government lodged a supplementary disclosure on Monday night in the wake of the Opposition's plan to form a new agency to act as a single buyer of wholesale electricity.

Scott St John, chief executive of First NZ Capital, one of three joint lead managers involved in selling the Mighty River Power stake, said the announcement was bound to unsettle some investors.

"The less seasoned investor is probably more likely to be unsettled by it - if that was the case it would be a great shame."

St John said part of the reason for the Government undertaking the power company floats was to help broaden the capital markets by attracting new investors.

"We would hope, after this announcement, that folk will regroup and press on because it is still a good company."

St John said more experienced investors were pricing in the announcement. "Some are seeing a more attractive value opportunity because their view is demand will now be narrower and there is the potential to acquire it at a better price."

St John said the public should take comfort in the pricing process because the incentives of professional investors were aligned with the broader buying public.

"The broader public can take a great deal of comfort in the process. If there is some new information they will process it and if they believe they need to adjust the pricing they will. They want to find a level that will deliver value."

The retail offer period closes off on May 3 with most of those planning to buy in expected to wait until the last minute.

St John said retail offers were typically "back-end loaded" with up to 80 per cent of investors waiting until the end to pay up.

The final price for the shares is not due to be set until May 8 after an institutional book build process is held.

Indications from brokers are that the offer is now being priced at the bottom end of the $2.35 to $2.80 range stated in the prospectus.

Some are suggesting it may even go below the price range but the Government has not adjusted the figure since the Labour/Green proposal was announced.

Numbers planning to invest drop

The Labour/Green Party proposal has prompted people to rethink their investment in Mighty River Power and some will reduce how much they invest as a result, a survey of experienced retail investors has revealed.

The New Zealand Shareholders Association surveyed 400 people and found 72 per cent intended to buy shares in Mighty River Power before the announcement and 24 per cent had yet to decide.

Since the announcement 50.15 per cent say they are undecided and the number of those who still want to invest has shrunk to 36.47 per cent.

A further 13.37 per cent say they won't invest at all now.

The survey also found 54 per cent would probably reduce their investment.

Shareholders Association chairman John Hawkins said that while most seemed likely to proceed, the amount they invested might drop as they reacted to the higher perceived risk.

"This was not unexpected as capital markets react very negatively to regulatory uncertainty or policy u-turns, even when the effect may be some distance in the future."