Mighty River May Deliver $1.4 Billion in Biggest New Zealand IPO

New Zealand may raise NZ$1.6 billion ($1.4 billion) from the sale of as much as 49 percent in Mighty River Power Ltd. in the nation’s biggest initial public offering.

The offer of up to 686 million shares is likely to open on April 15, and the shares will probably begin trading on May 10, Finance Minister Bill English and State-Owned Enterprises Minister Tony Ryall said in a statement. The offer price will be set via a sale to institutional buyers on May 8 within a range of NZ$2.35 to NZ$2.80 a share, the ministers said.

The sale begins a program that Prime Minister John Key has forecast will raise NZ$5 billion to NZ$7 billion, helping to speed up a return to a budget surplus. The government will also offload as much as 49 percent of Genesis Power Ltd. and Meridian Energy Ltd., as well as reducing its 74 percent stake in Air New Zealand Ltd.

“The share offer program is expected to raise capital that the government can spend on new investments that we would otherwise have to do without or we would have to borrow overseas to pay for,” English said. “The companies themselves will benefit from the mixed ownership model.”

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.

Fourth Biggest

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, English said. The company projects a dividend of 12 cents a share in the current 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.

About 440,000 New Zealand citizens pre-registered their interest in the share offer and will each receive a 260-page offer document, the government said. Key has pledged that at least 85 percent of the company will be owned by residents, including the government and fund managers who invest in local pension funds.

The sale will be the largest ever New Zealand IPO, exceeding the NZ$1.1 billion raised when it sold 60 percent of Contact Energy in 1999.

The 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.

Surplus Target

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.

Key had planned to sell Mighty River shares in the fourth quarter last year, before delaying to consult with indigenous Maori groups.

In February, the nation’s highest court rejected a bid from the Maori Council to delay the sale, claiming it violated the 173-year-old Treaty of Waitangi, New Zealand’s founding document, which gives indigenous people rights to land and resources.

Mighty River forecasts operating earnings will fall to NZ$382.6 million in the year ending June 30 from NZ$461.5 million a year earlier, offer documents published today show. Earnings will increase to NZ$497.9m in 2014, it said. Electricity demand in New Zealand has been flat for the past five years, according to the documents.

Retail Incentives

The government will offer residents who hold their shares for two years a 1-for-25 loyalty bonus that will be capped at 200 shares. It will hold back shares from the initial sale to issue under the bonus plan, ensuring it retains a 51 percent stake.

The government intends to offer shares in Meridian and Genesis in late 2013 and early 2014, Key said last year. Plans to also offer shares in coal miner Solid Energy New Zealand Ltd. are on hold after the company said in February it was seeking support from bankers as its debt rises and income shrinks. The company closed mines and fired workers, and more restructuring may be required, it said.

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