Govt changes tack on Genesis

HAMISH RUTHERFORD AND ELLEN READ
Last updated 15:04 26/02/2014
Fairfax NZ

Finance Minister Bill English announces that Genesis Energy shares will be available.

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Sean Willis
FOR SALE: Finance Minister Bill English announces the details of the Genesis Energy selldown.
Genesis
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Genesis Energy Auckland headquarters.

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Prime Minister John Key denies the Government has changed tack by saying it might sell as little as 30 per cent of Genesis Energy, saying the position for every sale was that "up to" 49 per cent would be sold.

The reason for raising the prospect of a smaller sale was to ensure the best price was raised, he said.
 
"We have a responsibility to make sure we maximise the return to New Zealanders who own these shares, currently in Genesis," Key told reporters, adding that he did not believe waiting a "year or two" would improve how much the sale would raise.

Finance Minister Bill English released details of the final state-owned asset selldown in a speech to an Auckland business audience this afternoon.

Initially the Government is open to selling 30 per cent of Genesis Energy, with this determined after meetings with institutional investors, English said. Up to 49 per cent of the company may finally be sold.

"Our initial advice is that a smaller Genesis offer could increase price tension in the front-end book build by offering fewer shares to more bidders,'' State-owned Enterprises Minister Tony Ryall said.

"But we will not know that until we further test demand in the market, where investors now have a wider choice of several energy companies.

"Our aim is to set a fair market price that works for both taxpayers and investors. We will announce a final decision on how much of the company we intend to sell before the offer opens."

Government tweaks to its sale process for Genesis Energy drew immediate criticism from opposition parties.

Green Party co-leader Russel Norman seized on the sale of 30 per cent of Genesis, rather than early selling 49 per cent of companies, as "an admission that they botched the earlier sales. It also raises the question of why they're going ahead with this sale at all," he said.

Norman said the inclusion of a bonus share loyalty scheme, details of which are yet to be announced, was an "expensive taxpayer hand-out to a small number of wealthy investors and National doesn't even know how much it will cost," he said.

Unlike the sales of Mighty River Power and Meridian Energy, the Treasury has decided to run a "front end" bookbuild, where institutional investors and brokers will compete for shares, setting the price.

Only then will retail investors, often referred to as "mum and dad" investors, be invited to bid for shares, where they will know how much each share will cost.

The loyalty bonus offered to retail investors is expected to be more generous than that seen in the Mighty River Power float, where the Government promised a bonus share for every 25 bought in the initial public offer, for investors who held the shares for at least two years.

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For Genesis, it is expected that the loyalty offer would include a higher number of bonus shares and potentially a shorter period for which they must be held before the loyalty bonus is paid.

Retail investors will also be offered an "investment statement" for Genesis, of approximately 70 pages, about a third of the length of the full prospectus.

Pre-marketing with brokers will take place in New Zealand next week, with Genesis management also going to Asia and Australia to promote the company to brokers there.

Cabinet is expected to formally consider the sale on March 3.

The offer is expected to open in the second half of March with the company due to be listed on the sharemarket around mid-April, subject to market conditions, English said.

The Government said the "front end" process was used in the float of Synlait, SLI Systems and Wynyard IPOs.

"This will provide more certainty for Kiwi retail investors, because they will know the price when they apply for shares," English said.

Retail investors in Mighty River Power bid with no knowledge of how much the shares would cost, while in Meridian investors were offered a price range.

''For the first time in the share offer programme, New Zealand sharebrokers will bid for shares at the same time as institutions. This will create stronger competition for shares during the book build,'' English said.

State Owned Enterprises Minister Tony Ryall said it would allow sharebroking firms to take part in the book build alongside New Zealand and international institutions, creating stronger competition among professional investors.

The Government has already sold 49 per cent stakes in Meridian Energy and Mighty River Power and a smaller stake in Air New Zealand, which was already partly owned by the public.

Late last year it slashed the amount it expected to raise from asset sales, although this included a reduction due to the fact that Solid Energy, once expected to raise about $1 billion, had been withdrawn from sale as it came close to collapse following an ill-fated expansion.

The new target is $4.6b-$5b, which, excluding the funds already raised, implies that the Government expects to raise $600 million to $1b from the partial sale of Genesis.

- Fairfax Media

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