MRP float – success or failure?

Once you look past all the politicking I think it has to be seen as a moderate success, with a share price just below the range predicted. There’s been a good take up of shares from private buyers , New Zealand and international investors.

Labour and the Greens are trying to talk up various points of failure, but they ignore the reality – 49% of Mighty River has been sold at a reasonable price.

It may have been valued down by up to $200 milion due to the Labour-Green NZ Power announcement, which may also have scared off small and first time investors, but that doesn’t make the share float a failure.

I think that over a hundred thousand purchases is a reasonable number. About the only thing that would have been gained by more people investing would have been National bragging rights. It has made little or no difference to the sale price.

The success of the Mixed Ownership Model is another thing altogether. It will take years to see the real effect on Mighty River, on power generation and on power prices.

Solid Energy is a market casualty before it has had a chance to be floated, that’s just as well.

The success of MOM in National’s cuurrent term in Government will be determined as much by the next couple of floats.There has been a lot of interest in the first SOE part sale, that interest may or may not be maintained.

If Meridian goes on sale next and does at least as well then National could claim some substantial success rather than one-off success.

If the Meridian float doesn’t do so well then it would raise questions about how god an idea the MOM programme was.

Note: I have supported National’s right to progress their flagship policy but have had mixed views on the nature of the MOM programme. I would prefer it was based on more business-like decisions but election cycle syndrome means less than ideal decisions are made.

NZ First asset share stance critical on coalition options

In a press release following the announcement of the pans to float Mighty River Power shares NZ First (Winston Peters) say they will push to buy back shares.

New Zealand First will use its influence on the next coalition Government to buy back our state-owned power companies which are being flogged off by National and we are committed to buying back the shares at no greater price than paid by the first purchaser.

It isn’t clear if this will be a bottom line in coalition negotiations. If it is a bottom line that would effectively rule out any coalition deal with National.

It would be interesting to find out how Labour and Greens would deal with this position. Both parties have an obvious preference for SOE shares not to be sold – but if the floats go ahead as planned will they accept that as a defeat and move to other priorities?

Stuffing share buyers and the sharemarket around may not be popular amongst critical voting demographics.

It’s important that Labour and Greens are clear about their positions on this.

UPDATE: I wouldn’t say this is a clear position but Whale Oil posted David Shearer comments from RadioLive:

Shearer says he won’t be buying the assets back because “I’m not sure that the economic argument stacks up”, he could become an owner through KiwiSaver, and he can understand why Kiwis might want to invest in Mighty River Power to keep it Kiwi-owned.

And a commenter neil:

he said it may not make sense to buy the asset back to get the dividend stream, so as long as he Govt sell fro more than the discounted dividend stream then it is better than holding. So his only argument must then be a combination of central ownership/control and not wanting foreigners. So a philosophical position.

I’ll have a listen through the interview tonight and see if there’s anything clearer than that.

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.

National talk tough with Waitangi Tribunal

National are pressuring the Waitangi Tribunal to come up with findings this month to enable the float of Mighty River Power to run to schedule in September – or at least to enable the Government to proceed while appearing to have given due consideration to the Waitangi Tribunal.

We’re not waiting, Govt tells tribunal

The Government says it will decide early next month if it will go ahead with the sale of Mighty River shares this year, whether it has a detailed Waitangi Tribunal report on Maori water rights or not.

Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall yesterday told the tribunal to speed up the delivery of its findings on a Maori Council claim into water rights by a month.

The ministers said leaving the tribunal decision until next month as scheduled would affect the Government’s entire asset-sales programme.

Mr English said he had asked the tribunal to deliver its findings by August 24 because the Government would need to make decisions by the first week of September if it were to proceed with the partial float of Mighty River Power this year.

He said the Government would make its decision then whether it had the tribunal’s findings or not, “on the basis of all the information available to us at that time, including the Waitangi Tribunal’s memorandum of July 30”.

Difference of opinion on timing:

In that memorandum this week, the tribunal requested the Government delay the Mighty River float until it delivered its findings.

It said such a delay should have little or no impact on the timing of the planned float.

But Mr English said this was incorrect. Delaying beyond the first week of September could mean the Government lost the chance to make the initial public offer this year and could result in a delay to the entire asset-sales plan over the next two years.

The September report from the tribunal was to be interim, it may have to be a bit more interim.

Bill English put out this press release yesterday:

Government seeks information from Tribunal

02 August 2012

The Government has written to the Waitangi Tribunal seeking further information on the Tribunal’s findings, recommendations and supporting reasoning with respect to its inquiry into national fresh water and geothermal resources.

Ministers have also clarified timing constraints under which the Government is operating for the proposed sale of a minority shareholding in Mighty River Power in 2012, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.

“The Government wants to consider the Tribunal’s recommendations and the reasons behind them as part of its decision on the Mighty River Power share offer this year,” they say.

“As we have said, we want to act in good faith and carefully consider the Tribunal’s recommendations.

“However, we appreciate the Tribunal’s interim direction on 30 July did not make substantive findings on any of the issues it identified. So we have today asked the Tribunal to provide its recommendations and reasoning by 24 August.

“To proceed with a Mighty River share offer in 2012, ministers would need to make decisions by the first week of September.

“We would do this on the basis of all the information available to us at that time, including the Waitangi Tribunal’s memorandum of 30 July.

“However, ministers would welcome the opportunity to consider the Tribunal’s detailed findings, its recommendations and its reasoning, which we do not have at this stage.”

The Government has also clarified the timing constraints it faces in making decisions about proceeding with the Mighty River Power share offer in 2012.
“The Tribunal expressed a view that there would be minimal or no delay to the share offer if it reported on stage one of its inquiry by the end of September,” the ministers say.

“However, there are a limited number of windows each year in which a share offer can take place.

“Delaying a decision beyond the first week of September and losing the 2012 window for the offer would have significant consequences, not only for the Mighty River Power offer, but also in delaying the rest of the share offer programme over the next two years.

“We have said consistently that we would welcome timely recommendations from the Tribunal. With that in mind, we have asked the Tribunal whether it is able to provide its recommendations and supporting reasoning by 24 August, so ministers are able to consider them alongside all other relevant information.”

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.