The sale of shares in Meridian Energy, New Zealand will raise only the bare minimum

New Zealand's Finance Minister said plans to sell a slew of state companies will likely raise only the bare minimum as the government priced the country's biggest-ever initial public stock offering at up to a third below estimates.

The sale of shares in Meridian Energy Ltd , New Zealand's biggest hydro and wind power generator, will raise at least NZ$1.96 billion ($1.65 billion), Finance Minister Bill English said on Friday, with the top end of the range possibly at about NZ$2.2 billion.

The pessimistic outlook complicates life for a government selling assets to underpin economic recovery ahead of an election next year and get the national budget back into surplus in 2015.

The Meridian sale will significantly reduce overall proceeds from the sales of three power companies, a coal miner, and the national airline, which the centre-right government had been expecting to deliver between NZ$5 billion to NZ$7 billion.

"We're looking at proceeds at the bottom end of that range," English told reporters at a news conference in Wellington on the asset sales, central to the ruling National Party's platform for an election that must be held by the end of next year.

Under Prime Minister John Key, the government plans to complete the asset sales by then, capitalising on an economy that is picking up a head of steam on strong commodity prices and improving domestic fundamentals year.

The Meridian offer documents show the government would raise a minimum of about NZ$1.96 billion from the sale, with the total depending on the final sale price and the mix of retail and institutional investors in a listing targeted for Oct. 29.

English said the pricing reflected commercial uncertainty facing a major Meridian customer, as well the risk posed by proposals from the opposition Labour and Green parties to cap power prices if they win next year's election.

The state will sell up to 49 percent of Meridian in an indicative price range of NZ$1.50 to NZ$1.80 a share, although small investors will pay no more than NZ$1.60 a share in a bid to attract local shareholders.

The capitalisation of Meridian was indicated at NZ$3.84 billion to NZ$4.61 billion, which compares with official government valuations two years ago of about NZ$6 billion.

The government raised NZ$1.7 billion from selling a 49 percent in Mighty River Power Ltd in May, although it has traded consistently below its issue price since listing.

It plans to see a 49 percent stake in a third power company Genesis Energy Ltd in the first half of next year.

MERIDIAN SALE FOR LOCALS

English said the Meridian offer, which is being held in two instalments, had been geared to attract small, local investors and to attain 85 to 90 percent New Zealand ownership.

"The price cap gives New Zealand retail applicants greater certainty around how much they will pay for Meridian shares," he said.

The offer is being held in two tranches, with investors paying NZ$1.00 a share on application and the balance in May 2015, during which time they will get three dividend payments.

The final price for institutional investors will be set through a book-building process.

A fund manager said offshore demand for Meridian shares should be strong, but the uncertainty over the future of an aluminium smelter, which is its biggest customer, and political policies, would weigh on the price.

"I think it would need to be priced at the lower end of the guidance to take into account some of those risks," said James Lindsay of Tyndall Investment Management.

Meridian is the country's biggest electricity generator from hydro power stations and wind farms, but sells much of its output to the unprofitable Rio Tinto -owned aluminium smelter at the bottom of the South Island.

Last month Meridian and the smelter struck a revised supply contract, which saw prices and volumes cut to take account of weak aluminium prices.

The smelter is locked into the contract at least until 2017, but its future beyond that remains uncertain, and closure would result in a glut of power, and depressing prices.

Meridian's chief executive said the smelter was a better performer than many in the region, and he did not see an imminent closure.

"It's not a slam dunk that the smelter will go," Meridian chief executive Mark Binns told reporters at the news conference in Wellington.

Meridian is forecasting a profit of NZ$187.9 million for the current year, and NZ$211 million for 2015/16. It reported a profit of NZ$295.1 million for the year to June 30.

Dividend yield is forecast at between 6-7 percent.