New Zealand’s government expects to raise up to US$1.8 billion by selling nearly half of the country’s largest power company.
Documents filed yesterday show the government expects to raise between NZ$1.9 billion (US$1.59 billion) and NZ$2.2 billion by selling 49 percent of state-owned Meridian Energy.
The share offer is the centerpiece of a contentious government asset sales policy. The center-right government says the proceeds will help reduce New Zealand’s public debt and pay for hospitals, schools and roads. Opponents have likened the program to selling the family silver. The government hopes to raise at least NZ$5 billion from asset sales.
Under the Meridian offer, buyers will need to pay NZ$1 initially for shares and then pay a second installment of between NZ$0.50 and NZ$0.80 after 18 months. New Zealand mom-and-pop retail investors are guaranteed a price not more than NZ$1.60 per share, while institutional investors may end up paying more.
Meridian generates about 30 percent of New Zealand’s electricity from hydro dams and wind farms.
The company is to list on the New Zealand and Australian stock markets on Oct. 29.
CONTROL
The initial public offering (IPO) will likely make Meridian the most valuable company on the New Zealand stock market, with a capitalization of up to NZ$4.4 billion. The government will keep control of Meridian through its 51 percent stake.
The government in May raised NZ$1.7 billion by selling 49 percent of another power company, Mighty River Power, but the performance of its shares has so far disappointed many mom-and-pop investors.
The stock was trading at NZ$2.22 yesterday, more than 10 percent below its IPO price of NZ$2.50, despite the broader market reaching all-time highs this week.
However, the Meridian IPO valuation is considerably less than a government valuation last year, which put the company’s worth at NZ$6.6 billion.
UNCERTAINTY
Part of the reduction is due to uncertainty surrounding the future of an aluminum plant, majority owned by Rio Tinto, which is Meridian’s single biggest customer. Also hurting the value are new policies announced by opposition political parties that would increase government control of the electricity market and force down residential electricity prices.
“It would be nice to be getting 10 billion, wouldn’t it, because we have a lot of infrastructure demands,” New Zealand Minister of Finance Bill English said yesterday, adding: “The value is what is.”
Opponents said the low price highlights the program’s failure.
“This is a fire sale, pure and simple,” opposition lawmaker Clayton Cosgrove said in a statement.
The program has proved contentious and opponents recently gathered more than 300,000 signatures to force a national referendum on whether people support the sales. The result of the referendum will likely be only symbolic, however, because the referendum will not be held before the sales are completed, or nearly completed, and will not compel the government to act.
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