May 7 (Bloomberg) -- The sale of at least NZ$1.6 billion ($1.4 billion) of Mighty River Power Ltd. in New Zealand’s biggest initial public offering will test investor appetite for state assets as the government seeks to slash borrowing.
The government plans to sell no more than 49 percent of the utility and last month indicated a price range of NZ$2.35 to NZ$2.80 a share. A two-day auction to institutions to set the price begins today and the stock starts trading on May 10.
The sale comes as Prime Minister John Key seeks to raise NZ$5 billion to NZ$7 billion from selling shares in state-owned companies to reduce reliance on borrowing and help return to a budget surplus by 2015. He also plans to offer stakes in Meridian Energy Ltd., Genesis Power Ltd. and Air New Zealand Ltd., banking on demand for higher yielding assets as interest rates sit near record lows.
“The government has said they have wanted to make sure investors have a good experience,” said James Lindsay, a manager of equities at Tyndall Investment Management Ltd. in Auckland. “The appetite for new issuance is very strong. It’s a good business, with a good yield and good management.”
The offer is the largest in Australia or New Zealand since Aurizon Holdings Ltd., the rail company formerly known as QR National Ltd., raised A$4.05 billion ($4.2 billion) in November 2010. It is New Zealand’s largest, set to exceed the NZ$1.1 billion raised when the government sold 60 percent of Contact Energy Ltd. in 1999.
Lindsay said the success of News Corp.’s placement of a 44 percent stake in Sky Network Television Ltd. in March, and the take up of 202 million shares in Trade Me Ltd. offered by Fairfax Media Ltd. in December, was evidence of demand among New Zealand investors. He declined to comment on what price he expected Mighty River would sell for.
“It’s up to the government to provide a fair price for what the asset is,” he said.
Key’s divestment program is New Zealand’s biggest since the government raised about NZ$10 billion between 1988 and 1990, including the sale of Telecom Corp. of New Zealand Ltd. to U.S. phone companies, government figures show.
The government is offering as many as 686 million Mighty River shares. It will offer residents who hold their shares for two years a 1-for-25 loyalty bonus that will be capped at 200 shares. The government will hold back shares from the initial sale to issue under the bonus plan, ensuring it retains a 51 percent stake.
The three-week public offer closed May 3 and the government was “pleased with the level of engagement from New Zealand investors,” Key told reporters yesterday. He wouldn’t disclose details. About 440,000 people pre-registered their interest in receiving offer documents before the IPO was announced on April 5.
The lead managers of the offer are Goldman Sachs Group Inc., Macquarie Group Ltd., and a partnership of Credit Suisse Group AG and First NZ Capital Securities.
JB Were (NZ) Pty, Craigs Investment Partners Ltd. and Forsyth Barr Ltd. managed the retail share offer.
Mighty River operates nine hydro plants, five geothermal stations and the natural gas-fired Southdown plant near Auckland. It sells power to about 20 percent of the nation’s homes, mainly through its retail unit Mercury Energy.
Based on the top price in the indicative range, Mighty River would be valued at NZ$3.92 billion, making it the fourth-or fifth-largest stock on the New Zealand stock exchange, the government said last month.
The company projects a dividend of 12 cents a share this year, which equates to a yield of 4.3 percent should the shares sell for NZ$2.80. That compares with a yield of 2.9 percent at Contact Energy Ltd., the largest publicly traded New Zealand power company.
New Zealand is targeting a return to budget surplus by 2015. It forecasts a deficit of NZ$7.34 billion in the year ending June 30. The country lost its top credit rating at Standard & Poor’s and Fitch Ratings in 2011.
Mighty River shares have been promoted to global investors while Key has pledged that at least 85 percent of the company will be owned by residents, including the government and fund managers who handle the nation’s work-based savings program KiwiSaver.
In Hong Kong, first-time share sales fell to a four-year low in the first quarter, according to data compiled by Bloomberg. Sinopec Engineering Group Co., a unit of China’s biggest refiner, and China Galaxy Securities Co. are seeking as much as a combined $3.6 billion in offerings this month.
The Mighty River offer has faced objections from some indigenous Maori groups, who claimed the sale violated the 173-year-old Treaty of Waitangi, New Zealand’s founding document, which gives them rights to land and resources. A court rejected the claim in February, clearing the way for the IPO to proceed.
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