Low price to tempt Genesis investors

MATT NIPPERT
Last updated 07:49 27/02/2014
Bill English
Sean Willis
FOR SALE: Finance Minister Bill English announces the details of the Genesis Energy selldown.
Genesis
Supplied
Genesis Energy Auckland headquarters.

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The Government is expected to set a low price for shares in Genesis Energy, to entice investors burnt by earlier asset sales, analysts say.

Finance Minister Bill English confirmed in Auckland yesterday that Genesis would be sold next month, bringing the Government's flagship mixed ownership model policy to a close.

English said though he remained willing to sell up to 49 per cent of Genesis, this could be reduced to 30 per cent if there was insufficient demand for a larger sale.

English agreed contemplating selling a smaller stake was partly due to concerns about saturating the market. The Government sold 49 per cent of other energy companies Mighty River Power and Meridian Energy last year.

"We need to test demand in a market, where there's a lot of choices about electricity companies, just how much demand is there this time," English said.

Green Party co-leader Russel Norman seized on the possible reduced sale stake 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.

Phil Anderson, of Devon Funds Management, said the poor performance of Mighty River Power made Genesis a tough sell.

"You don't get a second chance with retail investors. They're not sophisticated and as willing to crunch the numbers and accept risk. They tend to have the attitude 'you're not going to burn me again'," he said.

To ensure a successful sale the Government was likely to set a low price to entice investors back to market, Mr Anderson said.

"Price dividend yields of 9 or 10 per cent will get retail and institutional investors. That's roughly where it's likely to be pitched," he said.

Grant Swanepoel of Craigs Investment Partners was more upbeat and said Genesis was a solid company with good cashflows.

"There are some merits to looking at this one seriously," he said.

Swanepoel said whether the Government was able to meet its upper sale target would depend on whether the price was low enough.

"If the price is right, there's no reason the demand shouldn't be at 49 per cent. If it's wrong, it'll be at 30 per cent."

English said the Genesis sale would also include a loyalty bonus share issue for retail investors, similar to that seen with the Mighty River Power float.

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There the Government promised a bonus share for every 25 shares bought for investors who held on to the shares for two years. The loyalty scheme for Genesis is expected to be more generous.

Details of the share price, and the loyalty scheme, are expected to be released in the weeks after the Cabinet formally considers the sale on March 3.

English said he still expected the Government to realise between $4.6 billion and $5b from asset sales.

With $4b already booked from the part sale of Meridian Energy and Mighty River Power and a smaller stake in Air New Zealand, this suggests the Government expects to net between $600m and $1b from the Genesis sale.

Troubled state coal company Solid Energy has also been lined up for sale, but was taken off the market when it ran into serious financial difficulties.

English said the sale of Genesis marked the end of the controversial asset sale programme, and it would not be revisited even if National was returned to government at this year's election.

"The Government won't be selling any more shares in state- owned enterprises or mixed ownership companies."

- © Fairfax NZ News

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