In the cartoon Calvin and Hobbes, they play a game called Calvinball. “The only consistent rule states that Calvinball may never be played with the same rules twice”. It’s a bit like that trying to call this government to account. One day they have legal authority to give away shares, next they don’t. One day they don’t know the cost, then they do, then they don’t again. Like Calvin, I’m getting the impression that Key is just making it up as he goes along.
I particularly liked this nonsense from Key yesterday:
David Shearer: Did he announce the loyalty scheme to the National Party conference without being aware of the cost?
Rt Hon JOHN KEY: I announced the intention to have a loyalty scheme. I do not know the exact cost at this point, but what I do know is that there may be no cost.
What’s Key’s logic for saying there may be no cost? Well, apparently investors will be so overjoyed at the prospect of receiving a free ‘bonus’ share after three years that they will bump up the price they are willing to pay for their shares by more than the value of the free share.
It’s utter bullshit and Key, as a moneytrader, knows it. The option to get a free share in three years time has value but it is not the face value of that share – it has to be discounted for the fact that its three years in the future (at about 8% per year) and it has to be discounted for the fact that requires the shareholder to keep ownership of the shares, denying them the opportunity to do other things with that money if the choice comes along.
Besides, the price mum and dad will have to pay for shares isn’t going to be determined by anything as fancy as the discounted, risk-adjusted cost of a share option – it’s going to be the price that National reckons it can charge to a) not undershoot its revenue targets too much, b) not look like it’s giving these things away, c) get enough ‘mum and dad’ investors that it can label the float a success, and d) not get so many ‘mums and dads’ that it ends up paying out a fortune in covering their brokerage fees at about $40 a pop.
Danyl at Dimpost (who came up with the Calvinball comparison) adds:
Before the election Key insisted that the energy companies and Air New Zealand would be sold to ‘Kiwi mums and dads’, and said:
. . . given New Zealanders have $300 billion worth of investments, they will buy and keep the shares.
“We could say one hundred percent of shares to New Zealanders, obviously we could say less, but we are targeting that eighty five to ninety percent and I’m confident we’ll reach it,” Key said.
Here’s Key today on the possible cost of the loyalty scheme:
“If you think about the entire float that could be in the order of $5 billion to $7 billion. Let’s argue that it’s $5 billion for a moment if you then turned around and said about 20 per cent of that could be for mum and dad, it could be more it could be less – but just for the purposes of maths that’s a billion.
Key also adds:
These numbers that the Labour Party are coming up with and the Greens are farcical.
A guest poster, Twippy, adds what many Kiwis must be thinking every time Key grumpily snaps out insults at people who oppose asset sales: