So far the Government has completed the partial privatisations of Mighty River Power (“MRP”) and Meridian Energy (“Meridian”). The third and final gentailer on the list is Genesis Energy (“Genesis”).
Unfortunately for Genesis, the disappointing post listing performance of MRP and Meridian may have tainted sentiment towards the partial privatisations, particularly for retail investors. The MRP share price has fallen to around $2.00, 20% below its listing price, while Meridian Energy is trading only slightly above its listing price of $1.00 at $1.04.
However, Genesis does represent a different investment opportunity and should not be written off. The generation assets of Genesis include; the coal and gas fired Huntly thermal power station, hydro schemes in Tekapo, Tongario and Waikaremoana; a small wind farm in South Wairapara; and a 31% stake in the Kupe gas field off the coast of Taranaki. In addition, Genesis has the largest customer base of the listed gentailers.
The key difference between Genesis and the other two IPOs is its exposure to thermal energy via Huntly and Kupe. Meridian is largely a hydro generator with a small exposure to wind, while MRP is a mix of hydro and geothermal generation. The thermal exposure allows Genesis to manage changes in prices and demand in a different nature to the other two newly listed gentailers.
Details of an IPO are yet to be formally announced by the Government, but signs suggest Genesis is very well prepared and has been acting like a listed company. Management announced at its recent half year result that the company had undertaken a re-profiling of its coal contracts and signalled that the maintenance work on its Tekapo canal was near completion. Additionally, debt taken on to fund the acquisition of the Tekapo hydro scheme has been paid down to a more sustainable level.
Genesis is the last chance for the Government to get a partial privatisation right. Hopefully the offer structure and pricing is attractive and the IPO is not written off by investors based on the poor performance of MRP and Meridian.
Disclosure of interest: Milford on behalf of clients invests in Meridian Energy and Mighty River Power.