Credit Suisse, Macquarie and Goldman Sachs to be named joint lead managers of Mighty River Power sell-down, AFR reports

Treasury is declining to comment directly on an Australian Financial Review report suggesting Credit Suisse (whose New Zealand affiliate is First NZ Capital), Macquarie and Goldman Sachs will be named joint lead managers of the Mighty River Power initial public offering (IPO) as soon as today.

A Treasury spokesman would only say that the AFR was reporting timetable information from Treasury's request for proposal, which when released in December, noted Treasury hoped to commence the contract with the lead manager(s) from today.

"While (the) tender process is under way there is nothing that the Treasury can publicly say about them," the spokesman said. "This is to ensure that all parties who have responded to the request for proposal are treated equally and fairly, and to preserve the Crown’s commercial position as it procures services."

When contracts have been finalised, respondents to the request for proposal will be notified of the results, he added, with post-award notification published on the government's electronic tenders service website and a media statement probably also issued.

Busy holiday season

Chasing the plum IPO role, and the fees that'll come with it, has kept investment bankers occupied over the holiday season. Proposals were due in with Treasury by noon on January 4 and staff from the investment banks to make a short list were then brought in to make presentations to Treasury staff on January 16 and 17. Negotiations with Treasury's preferred banks were due to kick-off on January 19 and a contract targeted to be in place from today.

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

The National Party, 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%.

The 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 IPOs 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.

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.

NZ$100 mln in fees for the bankers

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. Ultimately this is likely to be split between a smorgasbord of banks with an array of firms taking a role in the floats especially given the government is targeting a wide range of investors with 85% local ownership its publicly stated goal.

The last SOE sharemarket float, Contact Energy in 1999, had eight managers in total including an international and New Zealand lead manager, international co-lead managers, New Zealand co-lead manager, and New Zealand co-managers.

And more recently the Queensland state government's partial privatisation of QR National, Australia's biggest rail freight company, in late 2010 featured five joint lead managers, two co-lead managers and a further nine co-managers.See more on this here.

Last year Treasury appointed Deutsche Bank and Craigs Investment Partners as Crown Advisors 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.