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Backgrounder: Green Party plan for higher public ownership of Meridian

Russel Norman MP
Russel Norman MP
russel [dot] norman [at] parliament [dot] govt [dot] nz (Email)

The Green Party will give investors in Meridian Energy the choice to not pay the second instalment of their share payment and, instead, receive fewer shares. This will be fiscally neutral for the government and result in higher public ownership of the company.

Purchasers in the Meridian float paid $1 per instalment receipt. In May 2015, they will be required to pay a second instalment of 50c, at which point their instalments receipts will be converted into ordinary shares in the company.

The Green Party will offer owners of instalment receipts the option to not pay the second instalment and receive fewer ordinary shares, instead. This option will be voluntary and open to all instalment receipt holders - i.e. all private investors in Meridian Energy, both retail investors and institutions.

In effect, this allows investors to choose not to make the last third of their payment for their Meridian shares and leave a third of those shares in public ownership instead. Precisely how many shares investors forego by not making their second instalment payment will depend on the value of the shares in 2015.

For example: a basic investor who bought 1000 instalment receipts in Meridian paid $1000 in 2013 and will owe a further $500 in May 2015 to have their instalment receipts converted into 1000 ordinary shares. If the share price in 2015 is $1.50 and the investor chooses not to pay the $500 second instalment, then they will forego 333 shares ($500 divided by $1.50 per share) and receive 667 shares, instead. The Crown will own the remaining 333 shares, resulting in a higher level of public ownership.

If the share price in 2015 is lower than $1.50, investors choosing not to pay the second instalment will forego more shares; if the share price is higher, they will forego fewer shares. For example, if the market price of the shares was $1.60, then the investor in the scenario above would forego 312 shares to avoid paying their $500. If the shares were worth $1.40, they would forego 357 shares.

This option will result in the Crown foregoing asset sales revenue but see it retain ownership of a higher proportion of the company. This is consistent with the Greens' long-standing opposition to the sale of these shares into private ownership.

At a share price of $1.50, full take-up of the offer by investors would result in Crown ownership of Meridian of 67-68%, rather than 51% in exchange for not receiving $628 million in asset sales revenue.

This option will be fiscally neutral in the first instance: the value of the revenue that the Crown foregos will be equal to the market value of the shares that it owns, which it otherwise would not. In the longer run, it is fiscally positive for the Crown as the greater dividend flow that the Crown will receive from owning more of Meridian will outweigh the increase in finance costs.

If all investors were to choose to forego shares rather than pay the second instalment at a share price of $1.50, the Crown would own 16% more of Meridian. It would face increased finance costs of $30m in 2015/16 but take in an extra $48m in dividends - an $18m net improvement on the Crown's operating balance.

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