Bill English has just admitted to Breakfast (good questioning by Nadine Chalmers-Ross) that the looters’ bonus on Mighty River Power will cost around $40m. You and I can think of many valuable things this government could be doing with $40m, rather than giving it to people who already have thousands in the bank. But that number also tells us something.
If National’s planning to give away up $40m of free shares at a rate of 1 for every 25 that retail investors still hold after 2 years, then they think ‘mum and dad’ will buy a total of $1 billion shares in the company out of $2 billion worth floated. In other words, half these shares won’t be bought by ‘mum and dad’, they’ll be flogged off to corporates and foreign buyers.
And, ironically, that $40m is likely to be too little to stop retail investors selling up. It’s only 2% a year. In the QR National sale, the loyalty bonus was 6.6% in one year and two-thirds of retail investors sold before it came due. An incentive that costs but is too small to influence behaviour is just money down the drain.
In the same interview, English refused to put any figures on the risks that Mighty River faces from Tiwai closing and from other things like regulatory reform (which, you might recall, becomes a whole lot more feasible and attractive after the sell-down). Mark my words, English will have real advice on the value of those risks. So will institutional investors. It’s just you – ‘mum and dad’ – who are being asked to invest with your eyes closed.