And now for something completely different …
Throughout the asset sales programme the mythical “mum and dad” investors have been held up as the reason why what appears to be in economic terms a very silly idea was actually very sound. The Government has claimed without proof that allowing private shareholders will instill much needed commercial discipline into the SOEs, will enliven the stock market and will create a new democratic structure where ordinary mums and dads would be able to become part of a shareholding corporate style democracy. Nirvana for most of us will be just around the corner.
Of course the reality is that National just wants to hand out our property to its rich mates. They have never let reality get in the way of political or corporate dogma.
And now that we are at the end of the firesale of the various power company shares the pretence is being dropped. Institutions and not mum and dad investors will be favoured in the Genesis share float.
A few weeks ago the Government floated the possibility that only 30% and not 49% of Genesis’s shares would be sold to the public. It expressed pessimism even though the returns were looking really good. The Government has shaved millions off Genesis’s value so that its expected yield is around the 15% mark. This is a phenomenally good return for a utility. David Cunliffe estimates that at this price the Government is losing $300 million on the likely value of the shares. To make it even better for investors the Government has promised to throw in a one for fifteen loyalty bonus for New Zealand investors.
Institutional shareholders and investors will compete for over 80% of the shares on offer with the rest being available to the mythical mum and dad investors. For the Mighty River Power float the figures were that roughly 55% of issued shares was owned by New Zealand retail investors, 18% by New Zealand institutions and 27% by overseas institutions. These figures give a distorted impression however as the top 11% of retail investors owned half of that particular group of shares.
No doubt any mum and dad investors have been burned by the loss in value of Mighty River Power shares and no longer have any money to spend on shares. I suspect a few wealthy individuals and foreign corporates will be thinking favourably about investing in Genesis.