20 Sep 2013

Meridian prospectus details made public

7:44 pm on 20 September 2013

The Government has valued Meridian Energy at $1.50-$1.80 per share and says investors won't have to pay the full price until 2015.

The prospectus for the partial sale of Meridian Energy values the company at $3.84 - $4.6 billion. The figure is a long way from some valuations last year of more than $6 billion.

The bottom of the range is just above a recent valuation by stockbroking firm Forsyth Barr of $3.8 billion.

The share offer opens on 30 September and people wanting shares will have to pay $1 each for them then. The balance will be payable on 15 May 2015.

Retail investors will have their price capped at $1.60 per share while institutional investors may have to pay more.

Up to 1.26 billion shares, or 49% of the company, will be sold.

The Crown expects to receive revenue of just over $2 billion from the partial sale.

People who buy the shares can expect a gross dividend yield of 13.4% for the first 12 months according to the prospectus.

Meridian's annual net profit is expected to drop from the $295 million it reported for the year ending June this year to nearly $188 million next year and $211 million the following year.

This year's result was boosted by the profits from selling Meridian's stake in the Macarthur Wind Farm in Australia.

On an underlying basis, net profit next year will drop only slightly, and will rise again the following year.

The company is expecting to pay out far more dividends in 2014 and 2015 than it expects to earn in net profit because the dividends will be based on cashflow, excluding depreciation.

In future Meridian expects to pay 70 - 80% of its free cashflow, depending on how much the company needs to invest. The payout also depends on the risks the directors believe the company faces and on its credit rating of BBB+ from Standard & Poor's being maintained.

The offer document alerts would-be buyers to several risks, including the Labour-Green plan to largely replace the electricity market with state control.

It also warns of risks of low rainfall to a largely hydro-based system.

But Meridian's chief executive Mark Binns says this can be overcome.

He said in 2012 the company had the worst hydrology inflows in over 80 years and the company still generated $323 million in revenue.

Abandon Meridian sale says Labour

The Labour Party says the Government is selling shares in Meridian Energy in a fire sale and should abandon plans to partially privatise the company.

Labour State-owned Enterprises spokesperson Clayton Cosgrove says the Government should realise the asset sales programme has failed and put an end to it.

He says it is a failure for the Government to sell shares in the company for between $1.50 and $1.80.

Mr Cosgrove says the asset sales programme is pure ideology and economically flawed.

More attractive than MRP says business writer

Business journalist Rod Oram says the offer of shares in Meridian Energy is likely to be more attractive than the Mighty River Power share offer.

Mr Oram says investors are likely to see the offer as better than the Government's first sale, because the shares are competitively priced and a high return is forecast.

But he says there are risks for investors from possible changes in Government policy if a Labour-led Government was elected, and from the decline in electricity consumption.