Delay Mighty River float

National is making an announcement today on it’s share float plans.

Due to market conditions and the current messy situation I think they should delay the Mighty River share float, but put a definite date on it of early next year – a delay of six months.

I don’t think they should delay things until all water issues and Maori claims are resolved – things have previously been able to be done pending Waitangi claims, so that should be able to happen here.

They could schedule one further energy SOE float, but subject to market conditions and how successfule the Mighty River float was.

A Solid Energy float should put on hold until that SOE is in a much better market position.

I don’t think selling a few more Air New Zealand shares will make much difference one way or another, except for market conditions. The airline sector is very volatile and risky so reducing state exposure is probably a sound idea.

If the asset sales referendum was held today…

Greens and Labour MPs are having another push to try and get enough signatures to have a referendum to tell themselves in the House of Representatives that they are members of what they have been promoting for the last year.

What would such a referendum tell the country? What would I do if the referendum was held today? The proposed question:

Do you support the Government selling up to 49 per cent of Meridian Energy, Mighty River Power, Genesis Power, Solid Energy and Air New Zealand?

I would consider a number of options:

  1. Not vote in protest  – unlikely
  2. Spoil my voting paper in protest – very tempting
  3. Answer Yes – possible because I’ve sort of supported the MOM share float programme on principle as it was National’s major election policy.

But if I was to honestly answer the question?

  • Right now I’d answer No – for a start market conditions make a Solid Energy float very unwise.

If the referendum is held some time next year I’d have to reconsider my response for a number of reasons, including:

  1. One or two SOEs may have already had their share floats so the whole question is meaingless
  2. The world economic situation may have tanked, making share floats difficult to justify
  3. The New Zealand economy might be resurgent making likely share prices very tempting

And there are many other considerations and factors.

This shows how unsuitable a simple referendum is for a complex political and economic policy.


Asset sale flaws?

There has been a lot of criticism of the asset sales progrom, much of it over the top, ill-informed (or deliberately misleading) political scaremongering. Claims of ponzi schemes and the poor subsidising the rich diminish the credibility of those opposing.

But there are some basic flaws. One of the stated aims of the MOM Bill share floats is to encourage many more New Zealanders into share market investment.

If you have a mortgage…

…common advice is to pay off all your debts (your mortgage) before investing money. To an extent this is wise advice, but not totally.

  • Property investors commonly buy more properties, leveraging of partial equity. They don’t wait until they have paid off one property completely before buying another.
  • Making modest investments establishes an investment habit and knowledge of the market so you are prepared for greater levels of investment once you are mortgage free.
  • Some people establish a mortgage repayment level and as their income grows they just spend more, so share investments may not make any difference to how quickly they repay their mortgage.

If the MOM floats look like a very good deal, especially with loyalty share incentives, I’ll happily buy a few shares while still paying off my mortgage.

Lack of diversity

The biggest flaw I see in the MOM floats is the lack of market diversity. One of the most important rules of sensible investment is to spread your investments across different types of investment (shares, property, bank deposits etc) and within one investment type spread the investment across different sectors.

Four of the SOEs being part floated are in the energy sector. It is generally regarded as a sound medium term investment sector but new investors should not be encouraged to invest completely in the same sector.

Air New Zealand is the exception, but airline investments are much riskier.

Float fatigue

I expect the Mighty River Power float to go well, with a lot of interest. Many new investors should be enticed into the market.

But each subsequent float will have trouble keeping the interest from small and especially new investors. Large investors like Kiwisaver funds, the Super fund and ACC should still be interested as they already have diversification across many investment types (and across the world). But if small investor interest wanes it may be difficult to ask for premium prices.

They probably won’t sink, but…

…the floats are on too narrow a range of investments to really spark and sustain new investor interest.

The Government has a limited range of SOE options for floating.

What the New Zealand Share market really needs is a much wider injection of investment opportunities from the private sector.

Drilling and mining…

…is one possible source that the Government is promoting, but that’s a relatively high risk investment sector.

What else should New Zealanders invest in?

I’d like to see a much bigger investment in energy conservation and micro generation, but that may impact on the value of the power shares being sold – unless the part floated power companies make a serious move towards future energy business.

People power sold down the river?

The NZ Herald reports on Asset sales threat stirs first-time protester.

“This is the first protest I’ve ever been to. I’m here for all New Zealanders.”

Good on her for attending and feeling motivated enough, but she was there for herself, not for “all New Zealanders.”

“It’s pretty cool. I feel like I’m making a difference, instead of just staying home.”

If she felt good about “making a difference” then yeah, cool. But I wonder whether the time and energy spent on “we must do something” could find a better goal, one that was achievable and could make a significant difference.

The stark reality is that MOM share floats, or not, will make little difference overall. Anti asset sales has been sold to political consumerists who may think they’re momentarily loving it but smoothing a few wrinkles won’t turn the age old clock back.

The main motivation for anti asset sales seems to have been little more than a consolation campaign for those who lost the last election.

The election was last year.

Imagine if all the effort put into being anti was instead focussed on pro positive initiatives, like job generation.

The anti asset sales protests include claims of exercising people power, but it’s more like failed parties from the last election recruiting gullible people.

People power is where people gather in strength, not where politicians fool the weak in their futile folly.

If an enthusiasm for making our democracy and politics better could be generated then people power may be much better harnessed. At the moment it seems like it’s being sold down the river by politicians who are stuck in the past.

Edit: a comment in response:

Fighting the next election by campaigning early on last years election issues shows how visionless and bankrupt the left are. They even have to use tax payers money to get signitures for their referendum.

Each time the news show the assemblage using the same old worn banners with the same faces it gets more embarrassing.

A lot of energy going nowhere. They need to pick their battles more carefully or maybe this is all they have got.



Remarkable change in asset (MOM) bill coverage

After months of strident opposition to ‘asset sales” and the Mixed Ownership Model bill, and complaints that National haven’t presented their side of ther argument well, this weekend saw a significant change in media coverage.

The MOM bill completed it’s passage through parliament this week.

Today TV1’s Q+A had an interview with Bill English that covered MOM issues, and there was a separate interview:

With Mighty River Power about to go on the block we talk to Mark Lister, Head of Private Wealth Research at Craigs Investment Partners.

This looked quite favourably at the propsoects of investing in Mighty River Power, and the potential advantages for New Zealand’s capital markets.

And yesterday (and repeated this morning) on The Nation Rachel Smalley had a realistic and informative discussion on the proposed share floats, especially of Mighty River Power – but curiously this doesn’t feature on The Nation website.

(As at 11.00am Sunday 1 July)

Is the Dotcom item really the lead item from The Nation? Have asset part sales faded from publicn interest this quickly?