Instalments plan offered to help sweeten Kiwi power selloff
The New Zealand government has added a sweetener to get more Kiwis and first-time investors to buy shares in Meridian Energy - letting them pay for shares in two instalments but reaping the dividends in between.
Meridian will be floated on the NZX in early November, with investors able to pay for 60 per cent of their total shares upfront and the remainder 18 months later.
They will receive a higher percentage return on their invested money during that period with three dividend payments.
It's essentially an interest-free loan for investors, Prime Minister John Key says.
"I think it's quite a good way of, essentially, encouraging New Zealand investors; they don't have to pay right upfront, they get a pretty beefed-up dividend ... It helps the digestion of a larger float."
The incentive is in contrast with the float of 49 per cent of Mighty River Power this year, which involved a loyalty bonus scheme that gives domestic retail investors one bonus share for every 25 they hold on to for two years after the share offer, up to a maximum of 200 bonus shares.
That loyalty program is expected to cost the government $NZ40 million ($35.79 million).
Finance Minister Bill English said the government did not yet know the cost of the Meridian scheme; that would depend on what the eventual share price was.
The government has also ditched the pre-registration process it used for Mighty River - 440,000 Kiwis signed up for shares but only 113,000 eventually bought in, 77,000 of them first-time investors.
Mr English said it was "yet to be tested" whether Meridian would draw in more first-time investors, although instalment receipts were "another tool" to get more widespread New Zealand ownership.
There will also be changes to the way the share price is set for New Zealand retail investors, with a price cap - instead of a price range - to be announced to give investors more certainty. It could see institutional investors paying more for shares than retail investors.
The announcement comes less than two weeks after the government announced a $NZ30 million subsidy to the Tiwai Point aluminium smelter - Meridian's biggest customer - to keep the plant open for at least three more years.
Mr Key also announced the government was likely to sell down a third power company, Genesis, in early 2014, but had not yet set a date for selling shares of financially troubled Solid Energy or Air New Zealand.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free