The New Zealand government plans to raise NZ$2 billion (or $1.7 billion USD) in the biggest IPO of a state-owned company, Meridian Energy Ltd. The move is expected to strengthen New Zealand’s budget. New Zealand plans to sell a 49 percent stake in the power generator when it goes public on October 29.

New Zealand

New Zealand’s privatization program to generate NZ$5 billion

The country already has NZ$1.7 billion from stake sales in Mighty River Power Ltd (NZE:MRP) (ASX:MYT). The South Pacific nation also plans to cut its stake in Air New Zealand Limited (NZE:AIR) and Genesis Energy Ltd. Shares of Mighty River Power Ltd (NZE:MRP) (ASX:MYT) are trading well below their IPO price amid concerns that if  Labor and the Green Parties come to power next year, they would push for stricter industry regulations.

New Zealand has launched a privatization program, which is expected to generate NZ$5 billion by the end of 2014. The Kiwi government aims to generate a budget surplus in the fiscal year ending June 2015. The government said in a prospectus published on Friday that the Meridian Energy shares will be priced between NZ$1.50 and NZ$1.80 for institutional investors and NZ$1.50 to NZ$1.60 for retail investors. However, the final price will be decided on October 23.

The price for retail investors is capped lower to attract individual investors, says Rebecca Howard of The Wall Street Journal. New Zealand’s finance minister Bill English said that the government wants 85 percent to 90 percent of Meridian Energy to remain in the hands of Kiwis. The government will sell shares as installment receipts. That means investors will pay NZ$1 upfront and the remaining sum after 18 months.

New Zealand government’s 11th hour deal

Finance minister Bill English estimates Meridian Energy’s market value to top NZ$5 billion when it goes public on October 29. Earlier this year, Rio Tinto plc (NYSE:RIO) (LON:RIO) threatened to shut down New Zealand’s only aluminum smelter, Tiwai Point, if Meridian Energy didn’t lower the power prices. Tiwai Point is the biggest consumer of Meridian Energy’s output. So, the government had to sign an 11th hour deal with Rio Tinto plc (NYSE:RIO) (LON:RIO), which owns 80 percent of Tiwai Point, to keep the aluminum smelter open.

Meridian Energy estimates to issue 10.5 cents per share dividend for the fiscal year ending June 2014. The company operates four windfarms and seven hydro-electric dams in New Zealand, according to Matthew Brockett & Tracy Withers of Bloomberg.