High demand expected for Genesis

16:00, Mar 28 2014

Analysts are picking demand will be high for shares in the country’s biggest electricity retailer, Genesis Energy, when its public offer opens today.

The price for shares in the state-owned energy company was announced at $1.55 last night after a bookbuild with institutional investors. The sale would raise up to $736 million for the Crown.

Finance Minister Bill English said already $620 million had been committed through the bookbuild, which was the first stage of the share offer.

At that price the shares will yield a gross dividend of 14.3 per cent, he said.

State-Owned Assets Minister Tony Ryall said the sale would take them to within the Treasury's target range for the asset sales, with the sale of all four assets earning $4.7 billion, he said.

"This is within the Treasury's latest estimate of between $4.6 billion and $5 billion across the entire programme."


Up to 55 per cent of the shares were expected to be sold to New Zealanders.

Genesis is the third state-owned electricity company to be partially floated by the Government within a year, and critics are closely watching to see if it attracts sufficient demand, after an initially disappointing sharemarket performance from the first company off the block, Mighty River Power.

Opposition parties were quick to criticise the last of the four SOE sales, with Labour calling it a ‘‘fire sale’’ and the Green Party calling it a ‘‘complete failure’’.

Greens co-leader Russel Norman said the amount raised from asset sales fell short of the up to $10b expected by Prime Minister John Key. The $550m cost of the asset sale programme so far compared to the $100m it was estimated to cost by the Government, Norman said.

Labour’s SOE spokesman Clayton Cosgrove said the amount raised from the sale of Genesis would leave the Government ‘‘more than $300m short of his $5b-$7b asset sales target’’. 

‘‘That’s failure by any standards, especially given Morningstar valued 50 per cent of Genesis at $900 million.’’

 However, brokers and fund managers said signals of interest from ‘mum and dad’ retail investors were strong.

Grant Williamson, head broker of Hamilton, Hindin Greene said: ‘‘Genesis has been extremely well received by the investment community and we think it will be a very successful IPO’’.

Williamson said the $1.55 price was slightly above the middle of the indicated range of between $1.35 and $1.65, which ‘‘indicates very good demand for the stock’’.

It also indicated that institutional investors may have snapped up the full 40 per cent of shares available to them, leaving only 9 per cent for retail investors who might even be scaled back. 

‘‘We won’t know that until Sunday or Monday.’’

Paul Harrison, of fund manager Salt Funds Management, said the price would be pleasing to the Government and the healthy dividend Genesis was offering next year would please mums and dads.

Genesis’ gross dividend yield of 14.3 per cent compared well to just about every listed company, brokers said.

There was also ‘‘nothing to suggest that they can’t continue paying dividends at this sort of level for some period of time,’’ said Harrison.

Genesis holds a 31 per cent stake in Kupe, as well as wind, hydro and thermal assets which could give it an advantage over rivals in dry years. 

‘‘A lot of the earnings do come from the Kupe oil and gas field and that’s expected to have a life of 10 to 15 years’’

Other factors in Genesis’ favour is its large customer base and a Government sweetener of one bonus share for every 15 shares held for a year.

Those terms are more attractive than the bonus offered to Mighty River Power shareholders, who have to hold their stock for two years to qualify for a bonus of one share in 25.

However, analysts say Genesis also faces risks, including predictions of a surplus of electricity capacity in the years ahead.

‘‘Some plants are more efficient than others. If there is a weakening of demand and supply, the more inefficient ones are likely to struggle quite a bit,’’ Mr Williamson said.

English said proceeds from the sale would go to the Future Investment Fund, to be spent on assets such as schools and hospitals.

The offer remains open until  April 11, after which Genesis is due to list on the NZX and ASX on April 17.


Genesis Energy

Share price: $1.55

Offer close: April 11

Listing date: April 17

Indicative market capitalisation: $155 billion