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Brokers accept fee of just 0.35 percent in Air NZ sale pitched at $1.60 a share

Monday 18th November 2013

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Brokerages participating in the sale of 20 percent of Air New Zealand for the government have accepted a fee of just 0.35 percent for what is seen as a trophy deal, people close to the transaction say.

The bookbuild, which was started today and will be completed by tomorrow afternoon, has been pitched at a starting price of $1.60 a share and is expected to settle between $1.60 and Friday's closing price of $1.65, they said.

At Friday's price, the 220 million shares on offer are worth $363 million, implying a fee of about $1.3 million will be shared between more than 10 participating brokers. That would include an institutional commission for the sale managers Craigs Investment Partners, Deutsche Bank and Goldman Sachs.

Offshore institutions are restricted in what they can buy because of the government's insistence on the airline remaining at least 85 percent in New Zealand ownership. Results of the sale including the price are to be announced late tomorrow.

The sales process has been at breakneck speed. The Treasury put out a request for proposals from broking houses on Friday night with responses due back by Saturday afternoon. That gave the brokerages just Saturday night to design the transaction, which was announced on Sunday afternoon.

But the government has been poised to proceed with the sale for longer, having accepted advice that it was timely with the shares near their highest in more than five years. The looming referendum on state asset sales, that starts on Nov. 22, may have influenced the timing as well.

With the overhang of government shares digested, there is the prospect of a further rally for the airline stock, which has advanced 27 percent this year, when they come out of the trading halt announced this morning for the duration of the bookbuild.

The stock is rated a 'buy' based on the consensus of six analyst recommendations compiled by Reuters, with a median price target of $1.94. Local institutions have typically been underweight the stock because of its scarcity to date.

Finance Minister Bill English and State-Owned Enterprises Minister Tony Ryall cited other selldowns of listed companies on the NZX in the past 12 months as examples of the success of an off-market sale process. Still, Auckland International Airport, Trade Me Group, Summerset Group and Sky Network Television all sold at a discount to the prevailing trading price.

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