On Monday, Mighty River’s shared dropped below the pre-IPO price of $2.50 for the first time since they listed. The price has since recovered slightly but is still a long way off its $2.73 debut.

Good Returns has been told by a source close to the deal that part of the problem may have been the allocation of shares to overseas institutions. “No matter how brave a face people put on it, this is not the intended result.”

He said he had been told that institutional investors had been given relatively small amounts. Overseas investors were given 13.5% of the shares.

The Government was believed to want to distribute a significant amount among New Zealand “mum and dad” investors to ensure they had a positive experience.”

“If you’re a Hong Kong hedge fund manager with $1 billion in stocks under management and you apply for $2 million, then get a call saying 'congratulations, you’ve been given $75,000', on the first day, what do you do? It’s your only investment in New Zealand, you don’t have time for it… you sell it.”

He said there had been a noticeable number of moves to sell MRP shares from overseas investors.

There was $1.1 billion in requests from retail investors and 80% got what they wanted.

The source said the Government would have been better to give 90% of the retail investors what they wanted and put the squeeze on New Zealand institutions a  bit more, so there was more of a drive to buy more shares once they listed.

As it was, there had been more people moving to sell than there was wanting to buy.

But he said the shares were still reasonably priced compared to comparable pockets and their value would lift again.

“$2.50 seems like a bit of a floor, touch wood… it will take a while to clear out the foreign institutions. When that happens, there’s a chance for the fundamentals to kick in. The last thing any investor should do is panic and sell.”

He said the experience with Mighty River Power would not affect the success of Meridian’s float because many months of trading would pass before the next IPO.