Genesis float comes with 1-for-15 share bonus sweetener
By Pattrick Smellie
March 13 (BusinessDesk) – The government’s unpopular asset sales programme will all be over in just over a month, with a quick-fire bookbuild and public offering scheduled between now and listing of the electricity generator-retailer Genesis Energy’s shares on the NZX on April 17.
The shares will be offered to the public at a price somewhere between $1.35 and $1.65, according to the indicative range announced today, although if uptake is low, Ministers may choose to restrict the amount of the company for sale to as little as 30 percent.
In its two previous electricity company partial privatisations, MightyRiverPower last May and Meridian Energy in October, the offer was for 49 percent of the shares.
Like the MRP float, the Genesis offer will include one bonus share for every 15 shares owned, capped at 2,000 bonus shares, as long as investors hold the shares they get in the upcoming float for a full 12 months. In MRP’s case, there was a two year wait for bonus shares, issued at a ratio of one-for-25.
The Meridian offer involved instalment receipts, allowing investors to partly pay for their shares up-front, with a second payment later, but this is not being repeated in the Genesis offer.
As with Meridian, however, the government diluted Genesis’s issued capital by roughly doubling the number of shares on issue, a move that makes no difference to the total value of the company but makes the price per share more attractive to small-time investors.
The Genesis offer adds one new factor - a fixed price when the offer opens so that investors know exactly how much they’re committing when they subscribe for shares.
In both previous floats, uncertainty over the strike price is believed to have discouraged some investors.
This time, there will be a price-setting and bookbuild exercise between March 26 and 28, allowing the offer to be opened to investors on March 29 with a known issue price. The smallest allowable investment will be $1,000.
“Based on the indicative share offer price range, the prospective 2015 financial year implied gross dividend yield is forecast to range from 13.5 per cent to 16.5 per cent,” said State-Owned Enterprises Minister Tony Ryall in a statement.
Depending on how much of Genesis is sold and at what price, the sale stands to raise between $405 million and $808.5 million, which would be added to the almost $4 billion already raised in the MRP and Meridian floats, and the selldown of 20 percent of the government’s shareholding in Air New Zealand.
The government had originally hoped to raise between $5 billion and $7 billion from the sale process, but the commercial failure of its coal mining SOE Solid Energy took that asset off the books, while a combination of factors have reduced the immediate value of the electricity companies.
Labour SOE spokesman Clayton Cosgrove said the Genesis float was a “last, desperate fire sale”, and predicted the falling number of individual investors seen in the MRP and Meridian floats would continue.
“MightyRiverPower got 112,000 investors, Meridian got 63,000,” he said. “Given the Government’s track record, it will be paying investors to take the shares off their hands.”
Genesis is the smallest electricity SOE by asset value but by far the country’s largest electricity and gas retailer with more than 650,000 customer connections. It owns a mixture of gas and coal-fired, wind and hydro plant.
In all three floats, the taxpayer remains the controlling shareholder, with at least 51 percent of the shares, and the government is committed to 85 percent New Zealand ownership at the time of the float, albeit foreign investors could then buy shares issued to New Zealanders.
Clouding the outlook for electricity companies are three major factors: the potential closure of the Tiwai Point aluminium smelter as early as 2017, the lack of electricity demand growth in the last five years, and the Labour and Green parties’ policy to dismantle the wholesale electricity market and replace it with a central buyer.
While an unlikely outcome, the smelter uses around one-seventh of all electricity generated in New Zealand, so its departure would prompt major industry changes to cope.
With power demand stalled since 2008, there are too many power stations available at present to meet demand, so wholesale power prices are lower on average than they have been in the previous decade, and the Labour-Greens policy would force price cuts of an unknown size, affecting current power company profitability.