Opposition power policy forces update to MRP float documents

Opposition power policy forces update to MightyRiver float documents

By Pattrick Smellie

April 22 (BusinessDesk) - The Labour and Green parties' new electricity policy has struck a new political blow, forcing the government to suspend the MightyRiverPower float overnight while it updates the offer document to would-be shareholders.

The update also triggers a five day window for investors who've registered for shares in the partial privatisation of the state-owned electricity company to withdraw their commitment.

The update appears likely to be released to the NZX tomorrow morning before trading opens, after first being filed with the Registrar of Financial Services this afternoon.

Prime Minister John Key announced the move at this weekly post-Cabinet press conference.

While there is as yet no detail, Key said there were four factors for investors to consider relating to the two main Opposition parties' plans to scrap the current electricity market arrangements and return to a central purchaser and planner of electricity.

These were: the likelihood of a change of government, whether the policy could be practically implemented, how long it might take to implement, and what its likely effect on electricity prices would be.

However, the intended MRP sharemarket listing on May 10 was "on track", Key said. He dodged a question on whether it was responsible to continue with the sale, given widespread institutional investor commentary suggesting MRP shares would now sell at or below the bottom of the $2.35 to $2.80 indicative range.

In a research note to clients issued last Thursday, investment bank UBS gave the policy a 40 percent likelihood of being implemented, based on a 50/50 chance of a Labour-Green government being elected and an 80 percent chance "of them actually following through."

Nick Lewis, an analyst at Wellington's Woodward Partners, said in a note to clients on Friday that "institutional investors may just have taken a big step back and are now likely to adopt a wait and see attitude."

While he expected "little impact on the demand for MRP from retail investors in New Zealand", he expected that instead of the float going off at the upper end of the indicative range, the more limited demand from price-setting institutional investors would see them "demand a lower price than they would have previously."

"Moreover, Treasury would likely need to write down its investment in the remaining two SOEs, Meridian and Genesis."

UBS said MRP and Meridian, both of which have substantial hydro-generation assets, could be the worst hit by the policy change.

Describing the policy as "practically difficult and theoretically flawed," UBS said the policy would ultimately cost taxpayers and consumers more than current policies because governments would over-build power stations rather than risk running out of power.

It was "hard to imagine this will not result in credit rating downgrades" for both private and state-owned electricity companies.

It sliced 78 cents off its target share price for Contact Energy, from $6.12 to $5.34, with an anticipated impact on its earnings before interest, tax, depreciation and amortisation of between $110 million and $150 million. Contact shares recovered 1.5 percent after last week's post-announcement tumble, closing at $5.39.

Repeatedly describing the Labour-Greens bloc as "far-left" to the National Party's "centre-right", Key appeared to acknowledge the political impact of the policy on the government's perpetually troubled asset sales programme.

"It might be OK politics if you're in Opposition, but ain't good policy," he said.

(BusinessDesk)

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