Yield hunt may lure more foreign MRP investors

The dam and power station on Lake Karapiro - part of Mighty River Power's generation assets. Photo / Grant Bradley

Mighty River Power stock may be in demand when it lists tomorrow from international buyers who are faced with low yields in their own markets and didn't receive as many shares as they wanted in the government allocation.

As Europe's economy shrinks and interest rates in the euro-zone, the US and Japan touch record lows, many investors are seeking opportunities outside their home markets. New Zealand's government yesterday said it had allocated foreign investors just 13.5 per cent of state-owned MRP's shares, after their applications were "scaled considerably," according to SOE Minister Tony Ryall.

Some 86.5 per cent of the shares will be New Zealand owned: 26.9 per cent by New Zealand retail investors and 8.6 per cent by New Zealand institutions, while the government retains a 51 per cent holding.

"Global investors may be interested in buying a bit more," said Andrew Bascand, who helps manage more than $1 billion in equities at Harbour Asset Management. "They are quite attracted to this part of the world."

Shares in the state-controlled electricity generator and retailer will list on the NZX at 12.30pm tomorrow at $2.50 a share. Based on that price, the cash yield is 5.2 per cent, said Bascand, whose funds participated in the share offer.

"For global investors, there aren't a whole lot of yields above 5 per cent," he said. "Domestically, as the cash yield goes down from 5 per cent there are many other competing opportunities that one could make."

Abduction and escape

Investors may turn to other energy stocks such as Contact Energy or Trust Power should sellers ask too big a premium for MRP, said Guy Elliffe, who helps manage $1.5 billion at AMP Capital Investors.

Some international investors may be driven by a mandate to invest in renewable energy, stoking demand for Mighty River Power which produces more than 90 per cent of its electricity from renewable sources, said Shane Solly, who helps manage more than $200 million at Mint Asset Management.

"I am not anticipating a huge sale of stock by private investors," said Solly, who participated in the offer. "It will come down to what international investors choose to do."

"Most have come in with less than what they bid for. There's been an element of people knowing that they would have to participate in the secondary market," said Solly who expects to be active in the stock.

International investors may have the largest impact on listing given previous experience with stock offerings in the Fonterra Shareholder's Fund, News Corp's sale of its stake in Sky Network Television and Fairfax Media Group selling its Trade Me holding, said Rickey Ward at Tyndall Investment Management.

"There will be sufficient allocation to encourage local institutions to support the deal on listing," Ward said. "While we may have not received anywhere near what we would have liked, we have received a sufficient allocation to encourage us to participate."