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UPDATE 1-NZ's Meridian makes safe debut but Genesis seen a harder sale

Gyles Beckford
Tuesday, 29 Oct 2013 | 3:34 AM ET

* Meridian shares climb 8 pct in first day of trade

* Govt had priced IPO at low end of expectations

* Genesis float seen harder due to higher cost structure

(Recasts with outlook for Genesis Energy sale)

WELLINGTON, Oct 29 (Reuters) - Meridian Energy Ltd staged a successful debut on Tuesday after New Zealand's government went to great lengths to win over investors, but even more in the way of sweeteners may be needed for the country's next asset sale.

Genesis Energy Ltd is next up on the block, due to come to market in the first half of 2014. But it will be the third large power company in a row the government has sought to partially privatise and comes with a much higher cost structure than Meridian and the first offering - Mighty River Power .

"The easy ones have been dealt with now, Mighty River and Meridian, in terms of asset quality they were better than Genesis and it will be a real challenge for the government to sell Genesis," said Morningstar analyst Nachi Moghe.

Moghe added that depending on market conditions, the government may opt to first push ahead with its plan to reduce its stake in Air New Zealand to 51 percent from 73 percent.

A non-utility sale would be a breath of fresh air and selling down a stake in a listed company is a much simpler proposition than an IPO, he added.

Prime Minister John Key's government is seeking raise some NZ$5 billion from the four sales, hoping to underpin an economic recovery and return the national budget to surplus by 2015. Political opponents have charged, however, that the programme is not only deeply unpopular with voters, but has been rushed and as a result the assets have been sold cheaply.

The sales of 49 percent stakes in Mighty Power and Meridian have together raised NZ$3.6 billion. The government had hoped at one stage to raise as much as NZ$3 billion from the Meridian sale alone and as much as NZ$7 billion from the asset sale programme.

Plans to sell a stake in debt-laden, financially troubled coal miner Solid Energy Ltd have been scrapped.

EXTRA SUGAR

Sweeteners were boosted for the Meridian sale after Mighty Power stock performed badly post-listing, trading as much as 14 percent lower than its IPO price.

Meridian's shares jumped 8 percent in their first day of trade but that came after the government had priced the stock at the low end of expectations. The government also devised a two part payment plan and set a share price cap to woo retail investors.

Meridian closed at NZ$1.08 a part-paid share, up from the issue price of NZ$1.00, with about 18 percent of its shares changing hands.

"It's a pretty successful debut for both buyers and sellers - the 5 to 10 percent premium seems fair," said Guy Elliffe, head of equities at AMP Capital Investors.

The shares were sold by the New Zealand government at NZ$1.50 each, but investors will make an initial payment of NZ$1.00 each, with the balance due in May 2015, during which time there will be three dividend payments.

A price range of NZ$1.50 to NZ$1.80 a share was indicated when the offer was unveiled in August.

In an indication of flagging retail interest in the power asset sales, about 62,000 small investors bought shares compared with the 113,000 who bought Mighty River Power shares in May.

Genesis, which has been valued at between NZ$1.8 billion and NZ$2.1 billion, is the nation's biggest power retailer, with about a quarter of the market.

It produces about 18 percent of the country's power but its generation is dominated by expensive coal and gas units, which raises its costs.

By contrast, Meridian's generation is all renewable hydro, wind and geothermal, while Mighty River is largely hydro.

Elliffe also said political risks hung over the utilities sector. A general election is due by the end of next year, and the two main opposition parties -- Labour, and the Green Party -- want to impose price controls on power companies, which would weigh on revenues.

($1 = NZ$1.2060)

(Editing by Edwina Gibbs)

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