Investment professionals like Genesis plan

Last updated 14:38 26/02/2014
Genesis Energy Auckland headquarters.

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The Government's sale plan for Genesis shares has been broadly welcomed by investment professionals.

They describe it as a sensible approach after problems with the floats of Mighty River Power and Meridian.

"It's good from the point of view of that both brokers and institutions will be treated the same," Grant Williamson of Christchurch-based sharebroker Hamilton Hindin Greene, said.

"It's very good for retail investors in knowing the price before they apply [for shares]."

Under the scheme announced today by Finance Minister Bill English, the price of Genesis shares will be set before retail investors are invited to submit their requests for stock, but after the prospectus is registered, in a bookbuild structure known as "front-end".

Another sharebroker, who asked not to be named, said the choice of a front-end process was interesting.

"That is a device you would use if you were clearly focused on maximising New Zealand retail participation," he said.

The prospectus would be registered with a price range in it, he said, allowing sharebrokers and financial advisers to discuss the offer with clients and assess how much they were willing to pay before taking part in the bookbuild.

"Clients can say 'I like it but at price nearer the bottom than the top'," he said.

However, the Government's decision to sell between 30 per cent and 49 per cent of the company showed its uncertainty over likely demand for stock.

"It should provide a mechanism to ensure the aftermarket is healthy - the Government can determine how much to sell when it has a better view of demand," he said, but added "I don't want to underestimate how difficult it's going to be".

Matt Goodson of Salt Funds Management said the change of bookbuild process was "perfectly normal".

"It will give some broking firms considerable ability in setting the price," he said.

"And it gives certainty to retail investors. I guess they're trying to generate a little bit of price tension."

Williamson said investors would welcome the loyalty bonus scheme but would be looking for an attractive offer price to consider switching from other power companies to Genesis.

"But overall retail investors will be relatively cautious with Genesis given the performance of last year's listings," he said.

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- Fairfax Media


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