The Government appears willing to forgo millions of dollars of income to ensure the float of Meridian Energy gets investor interest.
Retail investors will pay $1 per share as a first instalment and no more than 60c per share on the second investment, which could be up to 30c less than institutional investors.
Investors will have 18 months and three dividend payments before they have to pay the second instalment.
The instalment receipt system gives all shareholders who participate in the float an artificially high 13.4% rate of return in the first 12 months. While investors may only have paid $1 up front, dividends from Meridian will be calculated as if the full share price had been paid.
That allows the float to be marketed as producing a 13.4% ''implied gross instalment'' yield, instead of the yields of 8.4% and 9.2% forecast in the prospectus for the 2014 and 2015 financial years respectively.
Brokers will market the issue at an 8.4% yield because of listing rules but those contacted agreed the 13.4% would make the issue very attractive.
The final share price was expected to be announced on October 23 and the company was expected to list on the New Zealand and Australian stock exchanges on October 29.
The Government is selling 49% of the company and plans to do the same next year with Genesis Energy.
The perceived failure of the Mighty River Power offer, where the shares are now trading 10% below the $2.50 issue price, meant the offer had to be made attractive to entice investors.
People with term deposits rolling over would look for income and a high yield in a government-controlled company could appeal.
Finance Minister Bill English said the Government remained committed to putting New Zealanders at the front of the queue for shares.
''The price cap gives New Zealand retail applicants greater certainty around how much they will pay for Meridian shares, which is something the New Zealand Shareholders Association advocated.''
The price cap applied only to New Zealanders who applied during the share offer and it guaranteed they would pay no more than 60c for their second instalment, even if large institutional investors paid a higher price, Mr English said.
Retail applicants would need to hold their instalment receipts for the 18-month instalment period to benefit from the price cap.
State Owned Enterprise Minister Tony Ryall said the Government would carefully explain to New Zealanders the instalment payment process was an incentive that gave people an elevated return on their investment because they had only partly paid for their shares up front.
Meridian yesterday issued nearly issued 1 billion new shares to take the total of ordinary shares on issue to 2.6 billion.
At $1.60 a share, the Government would receive about $2.1 billion dollars, down on the expected $2.86 billion a $2.20 price implied.
Labour party SOE spokesman Clayton Cosgrove said Meridian was being sold off in a fire sale for $1 billion less than the $3.1 billion the Government needed to reach its ''hopelessly optimistic'' goal of raising $5 billion to $7 billion from asset sales.
''The reason for the low price is Mighty River shares have substantially decreased in value. The Government can't risk the same thing happening to Meridian, so they have to set the price as low as possible.''
The Government was warned by companies such as Macquarie and Forsyth Barr the price for Meridian would be far lower than expected, he said.
The sale should have been called off then. The sharemarket was sending a signal it did not have an appetite for more electricity companies, Mr Cosgrove said.
Brokers spoken to yesterday urged New Zealanders to take a long-term view of Meridian shares, rather than buying and selling them in short order.
Overseas institutions made a point of investing in infrastructure assets with a 20- to 30-year view because of the income they received in the period. The rise and fall of the share price was incidental to the yield the shares provided.
On September 30, Mighty River Power shareholders would receive a 10c per share dividend, which was the equivalent of 7.2c cash and a yield of 3% in less than five months.
''That's not a bad return,'' a broker said.
