Privatisations are seldom a luxury for governments; rather they are often born out of necessity. And this one was no different. On May 8 state electricity utility Mighty River Power raised US$1.5bn (NZD1.7bn) from equity investors and helped put New Zealand on the global IPO map in the process. The 49% minority stake sale of 686mn shares also marched its way into the records to become the largest public float on record by an issuer from New Zealand. The deal was made possible with the help of three lead bookrunners: Credit Suisse/First NZ Capital, Goldman Sachs, and Macquarie Group.
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CFW notes that the impact of the float was felt far beyond the borders of New Zealand. To be sure, upon completion the Mighty River float became the largest in Australasia region since Westfield Retail Trust raised US$2.0bn from investors back in December 2010. According to data provider Dealogic, it also brought combined Australasian IPO activity for 2013 to-date up to US$1.6bn, which represents the highest y-t-d level for listing activity in the region in six years. In fact, thanks to Asia's underperformance in the global IPO arena so far this year Australasia's haul of deals makes up as much as 18% of Asia Pacific listing activity so far this year. Indeed, the Mighty River float ranks as high as third in the Asia Pacific listings in 2013, behind the floats of BTS Rail Mass Transit Growth Infrastructure Fund and Mapletree Greater China Commercial Trust ( see CFW 'Market Leader', March 20 2013, 'Failing To Believe The Hype Surrounding Singapore IPOs') that raised about US$2bn a piece.
Mighty River served as something of a litmus test for the government as it kicks off a major stake sale programme. Indeed, the firm is the first among three power companies, a coal miner and an airline being primed for a float. In total the state is hoping to raise up to NZD7bn over the next three-to five years to pay down debt and get back it surplus. CFW believes that if the Mighty River listing is anything to go by the programme should prove to be a relative success. Indeed, the final price of NZD2.50 per share was sat in the middle of the anticipated NZD2.35 to NZD2.80 price range scoring a good return for New Zealand taxpayers, with the proceeds flowing directly into the state's Future Investment Fund. What is more, the shares hit the ground running and rose by 4.8% on their public market debut.
With the benchmark NZX 50 Index riding high, the government may be quick to bring other minority deals to market soon. Indeed the index has been on a bull run gaining 13.0% since the start of the year to reach a record closing high earlier this month, Bloomberg data shows. Minority 49% stakes in both Genesis Energy and Meridian Energy have been pencilled in for before the end of the year. Plans to privatise Solid Energy and Air New Zealand over the next three to five years are also in the pipeline too.
Although the listing itself went without a hitch, the firm's route to market was far more complicated. In fact, it went all the way to the country's supreme court. It was only as recently as February 28 that the New Zealand Supreme Court ruled in favour of the government to carry out its partial privatisation programme, overturning the appeal by the Maori Council to block the partial sale of Mighty River. Even when the green light was given - after the court ruled that it would not prevent the government from meeting its obligation to the Maori people - it came with stipulations. Prime Minister John Key expressed his intentions for 85% of the shares in Mighty River, which is responsible for producing around one fifth of the country's power, to be owned by New Zealanders. With interest from citizens strong in the lead-up to the listing - with reports claiming that one in ten New Zealanders registered an interest - it proved to be a success. Of the shares issued, as many as 86.5% were snapped up by local investors, including 26.9% by retail investors and 8.6% by institutions. The government will, of course, retain a majority 51% majority, with the remaining 13.5% going to overseas investors.
Privatisation is, of course, something of a one trick pony. CFW's Asia team believes that in the New Zealand, the partial divestment of state assets will be insufficient for the government to implement its infrastructure plans and meet its fiscal goals over the coming years. In its previous forecast, the government projected revenues of around NZD5-7bn from its privatisation programme. However, we have begun to see signs that the government is no longer as optimistic as it was previously, with Finance Minister Bill English's recent acknowledgment that proceeds could miss the original projections. We have long highlighted that these sales are crucial in enabling the government to finance its proposals through sustainable means.
Apart from the risk of lower proceeds, we believe that there is a high possibility of further delays in subsequent sales too. This would put the government's fiscal surplus goals further from their reach. Even with a smooth sale of Mighty River Power now complete, subsequent asset sales may experience delays, due largely in part to legal challenges brought about by the Maori community. On the back of this, BMI maintains its projections for the government to miss its goal of a fiscal surplus in FY2014/15 and only return to surplus in FY2016/17. The country lost its top credit rating at Standard & Poor's (S&P's) and Fitch Ratings in 2011, prompting the government to focus on debt reduction.