Instalments plan offered to help sweeten Kiwi power selloff
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.
Frequently Asked Questions about this Article…
The government is offering instalment receipts for the Meridian Energy float on the NZX that let investors pay 60% of their shares upfront and the remaining 40% 18 months later. Investors will receive dividend payments during that 18‑month period, effectively giving them an interest‑free loan on the unpaid portion.
Under the instalment plan investors still receive the company dividends between the initial payment and the later instalment — the article says there will be three dividend payments in that period — so investors get dividend income even though part of their shares is paid for later.
Prime Minister John Key described the instalment receipts as essentially an interest‑free loan because investors pay only 60% upfront, keep the shares, and receive dividends before paying the remaining 40% 18 months later, which boosts short‑term returns without charging interest.
Mighty River Power’s float offered a loyalty bonus (one extra share for every 25 held for two years, capped at 200 bonus shares) which cost the government about NZ$40 million. Meridian’s instalment receipts instead let investors stagger payments and receive dividends before the second payment; the government hasn’t yet estimated the Meridian scheme’s cost.
The government hopes so, but Finance Minister Bill English said it is 'yet to be tested.' The instalment receipts are described as 'another tool' to broaden New Zealand ownership after the Mighty River pre‑registration process (440,000 signed up) converted into only 113,000 buyers, including 77,000 first‑time investors.
Instead of a price range, the government will announce a single price cap for New Zealand retail investors to give more certainty at the time of the offer. The article notes this could mean institutional investors end up paying more than retail investors.
Yes. The article notes the government announced a NZ$30 million subsidy to the Tiwai Point aluminium smelter — Meridian’s biggest customer — to keep the plant open for at least three more years. That subsidy is relevant because it affects Meridian’s major customer and power demand.
According to Prime Minister John Key, the government is likely to sell down a third power company, Genesis, in early 2014. The government has not set dates for selling shares in Solid Energy or Air New Zealand, which the article describes as financially troubled.
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