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BUSINESS BREAKDOWN: Meridian pre-sale roadshow starts this week

Monday 8th July 2013

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Meridian Energy executives are heading into a round of briefings with institutional investors this week in what the NZ Herald reports is a “pre-sale roadshow” for the partial privatisation of the largest state-owned power company.

The roadshow is all part of the choreography to keep momentum in a process that still faces some big hurdles if a sale of up to 49 percent is to proceed, as planned, in the third quarter of this year.

Top of the list is the lack of resolution so far to the impasse between Meridian and its biggest customer, the Rio Tinto-owned Tiwai Point aluminium smelter, over renegotiation of long term electricity contracts. Meridian talks a good game about thi, saying it could sell heavily discounted smelter power more profitably elsewhere, but that’s still a big pill to swallow if you’re an investor. 

The other big issues are the state of the local sharemarket and investor appetite for another big chunk of power company shares. The NZX50 Index has already risen by about a third since the beginning of last year. How much more steam is there in this market, especially for a float likely to seek more than $2.5 billion and requiring at least 85%-plus local share ownership?

The pressure not to over-price Meridian is already strong, since the MightyRiverPower share price has sagged since listing in May to between 20 cents and 30 cents below its $2.50 listing price.

One suggestion doing the rounds is a part payment system for the Meridian float, which would see investors shell out only a proportion of the purchase price this year, with the remainder due a couple of years down the track.

NZOG’s Pike River dilemma:

New Zealand Oil & Gas has been caught badly by last Friday’s decision on compensation orders to the families of the 29 Pike River coalminers who died when the underground mine exploded in November 2010.

Greymouth District Court judge Jane Farish named NZOG as one of the parties who should be helping to stump up a total of $3.41 million in fines and compensation payments, since Pike River Coal is itself unable to fund the payments. Yet NZOG was neither a party to the court action, nor called as a witness.

Nor has the judge yet issued a written version of her judgment. That may still be a week away, meaning the oil and gas explorer – which was trying to quit Pike River as a bad investment when the explosions occurred – can’t even work out how to respond to the judgment for some days yet.

NZOG’s position is particularly invidious as it argues, with justification, that its actions at the time of the explosions helped considerably to get both the families and the local community through the crisis in its early days and were a major cost to the company, which owned 29 percent of Pike River.

NZOG made an immediate $1 million relief fund donation, left in place $12.5 million of a $25 million credit facility it had already advanced to Pike River ahead of further, previously unplanned capital raising, and allowing $7 million worth of payments to unsecured local creditors which it could legitimately have claimed for itself as a secured creditor.

$100 million ear-marked for Solid Energy:

As if to prove further that coal mining is a political black hole, Labour’s state-owned enterprises spokesman Clayton Cosgrove has scored a minor coup by uncovering the government’s intention to use up to $100 million of asset sales funds to prop up ailing state miner Solid Energy.

Using asset sales proceeds this way isn’t new. A total of $344 million has also been committed from the so-called Future Investment Fund to help KiwiRail with its infrastructure upgrade – a cost related directly to the last Labour-led government renationalising the loss-making freight carrier. Cosgrove probably won’t be making too much of that bit of history. Nor is he saying a Labour administration wouldn’t be assisting Solid.

He has, however, brought to public attention a figure that suggests the extent of the government’s willingness to help Solid Energy out of its $389 million debt blow-out. However, a spokesman for Finance Minister Bill English insists the arrangements are uncontroversial.

The money was a “short term standby facility to ensure Solid could continue paying its bills while negotiations about its future continue.”

“It is certainly not a long term capital investment facility and it hasn't been used to date. If it was called on it would be secured against the company's assets and the Crown would get its money back.”

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