Smorgasbord of investment banks likely to emerge as managers of Mighty River Power float, sharing fees

By Gareth Vaughan

Expect several investment banks to make the cut when the names of the lead managers of the government's partial sale of Mighty River Power emerge later this month, meaning the lucrative fee pie will be sliced into several pieces.

Investment bankers, along with their counterparts in the advertising industry, have been beavering away over the holiday season on their proposals to win the lead managers's role - and the fees that go with it -  from Treasury for the state owned enterprise (SOE) sharemarket float, which is the first in a series and may raise about NZ$1.8 billion. The last SOE float, Contact Energy back in 1999, had eight managers.

Proposals were due in with Treasury by noon on January 4 and the investment banks to make a short list are due to be told today. They'll then make presentations to Treasury staff on Monday, January 16 and Tuesday, January 17, with negotiations set to kick off with Treasury's preferred banks on January 19 and a contract targeted to be in place from January 25.

Last month the government confirmed Mighty River Power, which operates the retail brand Mercury Energy, as the first electricity generator and retailer for an initial public offering (IPO), probably in the third quarter of this year.

The National Party-led government is touting the so-called mixed ownership model as a way of boosting "ma and pa" retail investors' investment opportunities away from property and the collapsed finance company sector. The SOE floats are also seen as a way of kicking some life into a moribund domestic sharemarket whilst the government still retains control of the companies listed.

Follow the QR National and Contact Energy examples?

Given the government's stated objective of selling shares in Mighty River Power to a wide range of domestic investors, with local ownership of at least 85% targeted, several firms are likely to be appointed co-lead managers.

This was the process followed in the Queensland state government's partial privatisation of QR National, Australia's biggest rail freight company, in late 2010. QR National, which raised A$4.05 billion in a November 2010 float, had five joint lead managers in Royal Bank of Scotland, Goldman Sachs, Credit Suisse, UBS and Merrill Lynch. The IPO also had two co-lead managers and a further nine co-managers.

All the major domestic firms are expected to throw their hats into the ring for the Mighty River Power gig including First NZ Capital, Goldman Sachs, Deutsche Bank and Craigs Investment Partners in which Deutsche owns 49%, Forsyth Barr, Macquarie, UBS and Cameron Partners. So it could be a case of who misses out rather than who wins the gig.

State-Owned Enterprises Minister Tony Ryall estimates the sales, perhaps over a three year period, will see the government pay about NZ$100 million in fees to investment banks.

Like the QR National float, the Contact Energy IPO also had an array of managers. Eight. The international and New Zealand lead manager was ABN AMRO Rothschild, international co-lead managers were Goldman Sachs and Warburg Dillon Road New Zealand, the New Zealand co-lead manager was Credit Suisse First Boston NZ, and New Zealand co-managers were Craig and Co, Forsyth Barr, JB Were and Son and Merrill Lynch.

National, re-elected to government on November 26 last year for a further three years, contested the election on the policy of selling up to 49% stakes in Mighty River Power, Genesis Energy, Meridian Energy and Solid Energy, as well as selling down the government's 73% stake in Air New Zealand to no less than 51%.

Treasury estimates the share sales will raise between NZ$5 billion and NZ$7 billion, which has been earmarked by the government for "social infrastructure" spending, such as school upgrades and irrigation, over at least the next five budgets. The money will be noted in Treasury's accounts as the "Future Investment Fund."

To date, the government has already promised to spend NZ$1.48 billion of the SOE share sale proceeds: NZ$1 billion for school upgrades, NZ$400 million for irrigation investment, and NZ$80 million to help fund a technology institute. 

Last year Treasury appointed Deutsche Bank and Craigs Investment Partners as Crown Advisor for the SOE sales process, Australian based Lazard as Independent Advisor, and commissioned UBS, Macquarie, Goldman Sachs and First NZ Capital to do scoping studies on Solid Energy, Mighty River Power, Genesis Energy and Meridian Energy, respectively.

(Update adds details on the managers from the Contact Energy IPO).

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