New Zealand is poised to raise more than NZ$2 billion ($1.7 billion) in the initial public offering of Meridian Energy Ltd., bolstered by demand from individual investors, said two people with knowledge of the matter.
Prime Minister John Key’s government will probably price Meridian shares at the NZ$1.60 cap for retail investors, said the people, who asked not to be identified before an official announcement later today. New Zealand is marketing the IPO shares at NZ$1.50 to NZ$1.80 to institutional investors.
Key, seeking to drum up demand for the biggest IPO in New Zealand’s history, capped the price for retail buyers after state-owned Mighty River Power Ltd. fell from its May offering price. Investors will also pay for Meridian shares in two installments. Individual buyers could account for more than 60 percent of the Meridian IPO, one of the people said.
Selling as much as 49 percent of Meridian will bring Key closer to his target of raising about NZ$5 billion by the end of 2014 through divesting state assets. He has also pledged to sell shares in Genesis Power Ltd. and to reduce the government’s stake in Air New Zealand Ltd. The Mighty River IPO raised about NZ$1.7 billion.
The government will announce final pricing for Meridian this evening local time. A spokesman for Finance Minister Bill English declined to comment on pricing. Investors will pay NZ$1 per share upfront and the remainder 18 months later.
“People don’t have to buy it all at once, so that definitely makes it more attractive for investors, especially retail investors,” said Bruce McKay, an analyst at Edison Investment Research in Wellington, who expects Meridian to price at NZ$1.60 per share. “The installment-receipt structure will help it to go well.”
Of the 1.26 billion Meridian shares available, 800 million to 900 million may be sold to retail investors, one of the people said. The retail offer closed last week and demand has exceeded the Treasury’s expectations, this person said.
Offshore and domestic institutions are now bidding for the remainder of the shares in a bookbuilding period that closes today. Should the institutional portion be priced above NZ$1.60, the price for retail buyers will still be capped at that level.
The Treasury may opt for lower pricing even if demand from institutions allows it to sell shares at the top end of the marketed range, as officials seek to ensure Meridian advances after it starts trading on Oct. 29, one of the people said.
Meridian is New Zealand’s biggest power company, with seven hydroelectric dams and four wind farms generating about 30 percent of the country’s electricity needs. It also has a wind installation in Australia and another under construction.
“It is a 100 percent renewable energy producer, which is unusual in a global context, so for that reason it will attract some interest,” said Shane Solly at Mint Asset Management Ltd. in Auckland, who is bidding for Meridian stock.
Meridian had assets of NZ$7.74 billion at June 30 and revenue of NZ$2.7 billion in the 12 months through June, according to its IPO prospectus.
New Zealand appointed Goldman Sachs Group Inc., Macquarie Group Ltd. and a partnership of Deutsche Bank AG and Craigs Investment Partners Ltd. in May to manage the Meridian IPO.