The political furore over the partial privatisation of Mighty River Power will put downward pressure on the final price paid for shares in the electricity generator and retailer, but it will not drop below the indicative range set by the Treasury, say investment banking sources.
One well-placed financial market source said it looked like Mighty River would be priced at around the lower half of the $2.35 to $2.80 per share range set out by the Government in the offer documents.
He said it was looking like Mighty River would be priced at around $2.35 to $2.45 a share, compared with expectations of $2.60 to $2.80 before last week's announcement by the Labour and Green parties that they would put in place a single power purchasing system if they were to form a government.
The Government last week filed a supplementary disclosure to the Mighty River share offer to take into account possible additional risks to investors that electricity reform under a Labour-Greens government could pose and gave potential investors a five-day window to withdraw their applications.
"There is no change to the price range intended, and we are comfortable with the way that demand is building from all pools of investors," said Andrew Barclay, managing director of Goldman Sachs NZ, one of three investment banks managing the offer.
"Most investors are starting to understand the opportunity that is presented by the circumstance."
An auction-style book-building process - where institutions put in their indicative bids - will start on May 7. The final price will be announced on May 8.
Mighty River is expected to start trading on the New Zealand and Australian stock exchanges on May 10.
Once source close to the transaction said retail interest had picked up after going quiet for a day in the wake of the Labour-Green announcement.
He said overseas investors, who were no strangers to regulation in energy markets, would be more inclined to take a "worldly" view of the political uncertainties posed by last week's announcement.
The Mighty River investor roadshow had met with a favourable reception in Australia - a market familiar with state and federal regulation in its electricity markets.
The source said withdrawals had slowed "to a trickle" and that it had appeared the overall impact of last week's announcement from Labour and the Greens was negligible.
"Applications are back to where they were before the shake-up."
The prospect of buying Mighty River shares at lower levels has sparked additional investor interest, fund managers said.
"At the lower end of the range, it is not an unattractive entry level," said Shane Solly, portfolio manager at Mint Asset Management.
Rob Cameron at merger and acquisition specialist Cameron Partners - which is not connected with the offer - said the prospectus for Mighty River was highly detailed.
"And notwithstanding all that stuff, the company is still the same," he said.
Cameron is the former head of the Capital Markets Development Taskforce, many of whose recommendations have been adopted by the Government.
The stake to be sold of up to 49 per cent in Mighty River has been valued at $1.6 billion to $1.9 billion, based on the offer documents' range.
APNZ
By Jamie Gray Email Jamie