Friday 5th April 2013
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Shares in the partial privatisation of state-owned power company MightyRiverPower are expected to be priced between $2.35 and $2.80, with uncertainty about the future of the Tiwai Point aluminium smelter expected to skew pricing to the bottom of that range.
That means the government expects to raise between $1.6 billion and $1.9 billion in the politically unpopular initiative, which has nonetheless attracted registrations of interest from some 440,000 New Zealand-based investors.
With $1,000 the lowest permissible level of application for the 686 million shares to be offered, the smallest shareholder can expect to receive between 357 and 425 shares, assuming the indicative price range is correct.
The offer includes a special loyalty offer whereby investors who buy shares in the float will be eligible for one additional share for every 25 shares they own, as long as they hold the original shares for at least two years, up to a maximum of 200 shares.
A sharp rise in profitability is forecast for the current financial year to June 30, at $94.8 million, up from $67.7 million last year, and another jump forecast in the year to June 30, 2014, to $160.4 million.
The improvement reflects a combination of a slight rise in sales, falling costs across most major items other than staff, and the fact that some $91.4 million of impairments were recognised in the current year, mainly reflecting writedowns on the value of international geothermal investments.
Those projections imply gross annual dividend yields over the two years of between 6 percent and 7.7 percent, and earnings per share of 6.77 cents per share in the current year, rising to 11.46 cents in the 2014 financial year. Annual cash dividend yields would be between 4.3 percent and 5.5 percent over the two years.
Price earnings ratios of between 34.7 and 41.4 times are implied for the current year, falling to between 20.5 and 24.4 times in 2014.
Hastily rejigged elements of the offer document give new information about the uncertain impact on MRP's profits if the Tiwai Point aluminium smelter, which consumed 13 percent of all electricity produced in New Zealand last year, were to curtail production further or close.
"If New Zealand Aluminium Smelters were to significantly reduce consumption below 2012 levels or cease consumption altogether, the resultant drop in demand could lead to a sustained reduction in wholesale electricity prices ... and electricity prices generally," the document's risk section says.
The extent of those impacts would depend on a variety of factors, including the ability of the transmission system to take power from Lake Manapouri to other parts of the country instead of mainly serving Tiwai Point, whether competitors closed high-cost coal and gas-fired plant reflecting the over-supply of hydro-power that would result, and growth in electricity demand as the economy grows.
"A retirement of high-cost thermal plant could reduce downward wholesale electricity price pressure."
The Tiwai Point issue is critical to investors' decisions to participate, after the smelter's supplier, state-owned Meridian Energy, announced last Thursday it thought a new supply contract was "unlikely" to be reached with Pacific Aluminium, a Rio Tinto subsidiary which controls the smelter at Bluff and six ageing Australian smelters.
Pacific Aluminium has since said it believes a deal is possible and a crucial meeting is scheduled with Meridian next week.
However, indications from analysts are that uncertainty about the Tiwai Point outcome could knock as much as 10 percent off the issue price of MRP shares, which will be announced on May 8, for an expected dual listing on the NZX and ASX on May 10, six days before Finance Minister Bill English delivers his fifth budget.
The offer itself officially opens on April 15, with an institutional book-build on May 7 and 8 determining final pricing. Indications are that the Meridian-Pacific Aluminium talks are unlikely to have been concluded by then.
The offer document acknowledges that hydro-electric power costs around $5 per Megawatt hour to produce, compared with up to $110 per MWh from fast-start gas-fired plant such as MRP's Southdown plant in Auckland.
The loyalty scheme is only open to New Zealand retail investors. Financial institutional shareholders and foreign investors will not be offered the opportunity. The rules of the float also forbid any single shareholder, other than the government, from owning more than 10 percent of the company. The government will retain control by virtue of its continuing 51 percent ownership.
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