Mighty River Power's share buy-back attracts criticism;
pictured, its Karapiro dam and power station, on the
Waikato River. Photo by Alistair Guthrie.
Five months to the day since the Government's partial
float of state-owned enterprise Mighty River Power, the company
has signalled a $50 million share buy-back programme, likely to
buoy its flagging share price.
Mighty River shares are trading more than 10% down on their
$2.50 list price and the Labour Party yesterday labelled the
buy-back a ''an act of absolute desperation'' to prop up the
price, while the Green Party said National's asset sales had
now gone ''from failure to farce''.
Since Mighty River's listing on May 10, its $2.50 shares
briefly hit $2.73, but then traded to a low of $2.17.
Following yesterday's announcement, its shares gained 5c to
trade around $2.25.
Mighty River's chairwoman, Joan Withers, announced the
buy-back yesterday, saying it was part of its capital
management plans and a prudent use of capital.
The board's view was that the purchase of its own shares was
in the best interests of Mighty River and its shareholders,
However, Labour's spokesman on state-owned enterprises,
Clayton Cosgrove, claimed the buy-back was ''market
interference, pure and simple''.
''The Government will be very happy with this [buy-back] act,
as the falling Mighty River Power share price is scaring
prospective Meridian Energy investors away.
''Clearly the [Mighty River] board could see the writing on
the wall and knew the share price would fall even further,''
Mr Cosgrove said.
The buyback, represented less than 2% of the company's
Mrs Withers noted Mighty River was spending about $100
million less than forecast in its prospectus, during 2013,
meaning a better-than-expected year-end balance sheet, and
subsequently a lower-than-expected capital expenditure during
The buy-back was preferable to other options, such as a
special dividend or change to dividend policy, she said.
Green Party co-leader Metiria Turei said Prime Minister John
Key's asset sales ''have descended from failure to farce''.
''Just five months after National sold these shares,
promising a golden opportunity for so-called `mum and dad'
investors, Mighty River is buying them back at a loss for
investors,'' Mrs Turei said.
Craigs Investment Partners broker Peter McIntyre said the
buy-back would be expected to be ''supportive'' to the share
price, and while he acknowledged there was criticism of the
buy-back, it was commonplace for companies to undertake
Forsyth Barr broker Andrew Rooney said that typically
buy-backs helped underpin a share price and were common for
companies which believed their share price was trading well
Both brokers noted Air New Zealand, TrustPower and Infratil
are also offering buy-backs.
''They're good for shareholders, as the value of their shares
- assuming they don't sell - increases,'' Mr Rooney said.
Mighty River's capital expenditure savings come mainly from
not taking up options it has held, to invest in overseas
On the question of too many sellers potentially pushing the
price down further, Mr Rooney said ''I don't believe there
would be a risk of a rush to sell''.
Mr McIntyre also doubted any rush, noting many shareholders
would be waiting for the bonus share issue, and if sellers
stepped in, the company would be buying to underpin the
Ms Turei today launches the Greens' ''Vote No to Asset
Sales'' campaign in Auckland.