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You’re paying for interest-free loans to foreign bankers

Written By: - Date published: 9:00 am, September 19th, 2013 - 89 comments
Categories: accountability, privatisation - Tags:

You will have heard of this ‘buy now, pay later’ plan that the Nats have to try to save the Meridian sale. Pay 60% of your shares’ price up front, the remaining 40% in 18 months. It’s an interest-free loan, funded by higher government borrowing. What we didn’t know is this outrageous fact: this taxpayer-funded interest-free loan will be extended to foreign banks. The Nats don’t know how much it will cost. The Parliamentary library says $60m.

Here’s an what happened in Question Time yesterday.

1. Dr RUSSEL NORMAN (Co-Leader—Green) to the Minister for State Owned Enterprises: What is the forecast cost to the Crown of the Government’s plan to allow buyers of Meridian Energy shares to pay for their shares in instalments and will the instalment scheme be open to overseas institutions?

Hon TONY RYALL (Minister for State Owned Enterprises) : Thank you for the opportunity to talk about the Meridian Energy share offer. It is on. As I advised the member in the House last month, there is no forecast cost for instalment receipts, because any such estimate would be affected by many factors, including the final price of the shares. To the second part of his question: yes, that has been known since last month, when the Government announced the instalment receipt structure for investors.

Dr Russel Norman : I seek leave to table an estimate of the cost of about $61 million, prepared by the Parliamentary Library.

Mr SPEAKER : The source of the document is the Parliamentary Library?

Dr Russel Norman : Yes.

Dr Russel Norman : Can the Minister confirm that if, for example, Goldman Sachs, based in the United States, was to buy Meridian Energy shares, Goldman Sachs would be allowed to access the interest-free loans in order to buy those shares?

Hon TONY RYALL : They are not interest-free loans, but certainly all investors will be able to use instalment receipts

Dr Russel Norman : Can he think of a more extreme case of a Government that favours the rich and the powerful over everybody else than the example of giving interest-free loans to offshore investment banks so that they can purchase shares in what is currently a company owned by the people of New Zealand?

Hon TONY RYALL : The Government has been quite clear on the reason why we have got these instalment receipts. We have also been very clear that, at float, this company will be owned 85 to 90 percent by New Zealanders. That is our goal

Ryall tried to dance on the head of a pin, saying that the ‘instalment receipts’ don’t amount to an interest-free loan, even though you get the whole ownership of the shares without paying for 40% of the value for 18 months. But the truth is there: if Goldman Sachs buys Meridian shares, you will help pay for their interest-free loan/instalment receipts. Apparently, this is to help facilitate Kiwi ownership.

Don’t think about it too hard, it doesn’t make any sense.

Oh, and regarding Ryall’s claim that the instalment scheme isn’t an interest-free loan, well Key said that is ‘essentially’ exactly what they are. Oops, I assume Ryall will be correcting his answers today, seeing as he’s also said “I always agree with the Prime Minister.

89 comments on “You’re paying for interest-free loans to foreign bankers ”

  1. The Gormless Fool formerly known as Oleolebiscuitbarrell 1

    You’re paying for interest-free loans to foreign bankers

    …which will be reflected in the price. Because that is how markets work. (Not that I expect many here will be able to grasp that).

    • 😆 Here are some tips for ya from the Ellen Brown about the Tsunami of financial shit coming our way due to low interest banking shenanigans. Not that I expect the gormless fool to get this.

    • framu 1.2

      which is ignoring everything that points to the price not being what the govt hoped

      so perhaps you should look at the full picture rather than asserting some market voodoo and calling other people thick

      • The Gormless Fool formerly known as Oleolebiscuitbarrell 1.2.1

        which is ignoring everything that points to the price not being what the govt hoped

        You mean it’s a dog? Maybe the taxpayer is lucky that the government got out just in time.

        • thatguynz 1.2.1.1

          Would that be the same government that stifled Meridian’s ability to provide dividends/profits and thereby reduced it’s market value by “encouraging” them to re-subsidise the power supply to the Rio Tinto aluminium smelter?

          You can’t have it both ways I’m afraid Gormless.

          • The Gormless Fool formerly known as Oleolebiscuitbarrell 1.2.1.1.1

            So you are not one of the many here who have been gloating about the share price having gone down? Good on ya.

            • thatguynz 1.2.1.1.1.1

              I assume you are referring to MRP now rather than Meridian? Why would I gloat about it – as taxpayers we still have a vested interest in MRP as we theoretically own 51% of it.

              Nice try to deflect the issue that I raised however.

        • framu 1.2.1.2

          no. i mean your argument doesnt stack up – nothing more, nothing less

        • felix 1.2.1.3

          “You mean it’s a dog? Maybe the taxpayer is lucky that the government got out just in time.”

          Hi Gormless.

          The “taxpayer” interest – actually public interest – is not in the share price or the dividend. It is in owning the ability to generate energy. Instead, we’ll now pay the overseas owners for the privilege of having them sell us our own energy at a profit.

          No big deal though, it’s not like energy is ever going to be an issue.

          • The Gormless Fool formerly known as Oleolebiscuitbarrell 1.2.1.3.1

            Yeah, I know. Peak Oil is coming…

            • Colonial Viper 1.2.1.3.1.1

              2006-2007 mate. Do keep up.

            • felix 1.2.1.3.1.2

              That’s weird Gormy, I tried using that kind of sarcasm at the servo the other day and it had no effect on the price of fuel at all.

              How do you get it to work like that?

              • The Gormless Fool formerly known as Oleolebiscuitbarrell

                Your barbs cannot injure me today, Felix. For some reason, I feel very warmly towards you, you loveable scamp.

                • felix

                  No barb intended, I genuinely want to know how you’ve managed to negate the impact of the cost of energy.

                  • The Gormless Fool formerly known as Oleolebiscuitbarrell

                    I do not own a motor vehicle.

                    I have an electric lawn mower.

                    But I have great faith in the power of my sarcasm, so I may give it a crack, just to see.

                    • felix

                      I suppose if the only electricity you use is for your lawnmower then that explains why you don’t care who owns the ability to generate it.

                      Worst case for you is long grass, or a sheep if you’ve got a lot of it. (Assuming you don’t live in some sort of interconnected society of course.)

            • infused 1.2.1.3.1.3

              Coming… I thought it was here… funny how the date keeps changing.

    • Pascal's bookie 1.3

      which will be reflected in the price

      Efficient markets yup. Axiomatic til they go pop and everyone acts all surprised.

  2. tracey 2

    is someone surprise by this?

  3. AmaKiwi 3

    The other day Key was spinning some b.s. about how this election is going to be about “ideas.”

    Here’s an idea. Who belongs in jail, the guy who smokes pot or the one who gives your money to Goldman Sachs, SkyCity, Rio Tinto, commercial fishermen, charter schools, and Warner Brothers?

    Go Norman and Cunliffe!

    • Blue 3.1

      One is illegal, one is not. So off to jail with the pot smoker. I’m sure you knew that opposing something doesn’t make it illegal and wee just being deliberately obtuse.

  4. geoff 4

    Labour may be catching up but Russel Norman hasbeen the most consistent performer for the left in the house.

    Here’s the vid:
    http://inthehouse.co.nz/node/21051

    • bad12 4.1

      Lolz, it’s Russell’s voice, listening to Him grill various Ministers has me envisaging one of those torture racks slowly turning in the dark ages,

      Watching the temperature go through the roof in Nick Smith’s head as Russell makes inquiry of Him from every conceivable angle is akin to watching a bull terrier eviscerating a toy mouse and a joy to watch,

      After politics the rumor is that Russell Norman is going into the magic business with the heart of His act featuring the bending of silver spoons into fantastic angles…

      • David H 4.1.1

        “After politics the rumor is that Russell Norman is going into the magic business with the heart of His act featuring the bending of silver spoons into fantastic angles…”

        “Instead only try to realise the truth,” “What Truth?” “There is NO spoon”

    • Rogue Trooper 4.2

      Russel is a very good interrogator

    • Chooky 4.3

      geoff +1

  5. geoff 5

    Tony Ryall’s response hinged on an argument that, if the so called ‘installment receipts” (interest free loans) lifted the share price even 1 cent then that would be beneficial to NZ to the tune of “millions and millions and millions of dollars”

    So how are effects of installment receipts on the share price measured? How could anyone possibly know what portion of the share price was determined by installment receipts?

    voodoo economics.

    • Lanthanide 5.1

      This is standard right-wing economics theory.

      Give everyone a tax cut, claim it’ll increase growth in the economy. Then after the fact when people start saying “these growth figures aren’t as good as you promised” they just turn around and said “unfortunately not, but just imagine how much worse it would have been if we didn’t have the tax cut!”.

    • Saarbo 5.2

      Spot on Geoff, it is ‘voodoo economics’, instead of adding this complex bribe, which is only there to confuse the so called “mum and dad” investors, traditionally the issue price would have been lowered. Meridian will announce a huge dividend, which will inflate the yield based on the 60% payment. If kiwi’s get sucked into buying Meridian then our general understanding of these matters has not improved since the nation was sucked into investing in dodgy finance companies in the late 90’s and early 2000’s.

      The Meridian float has a huge risk attached to it, mainly driven by NZ Power…because for Meridian to be successful it requires Meridian to make SUPER NORMAL profits from its customers, which is highly unlikely under the Labour/Greens NZ Power policy. Classic National Party politics, a small number benefit at the cost to the rest of the population.

      National are crazy to continue with these floats, they are a really tough sell. But they have to save face now, what we are seeing is a very desperate National Party in action. Quite funny really, they have been completely gazumped by Labour/Greens.

  6. Greywarbler 6

    It’s a Richard Prebble scenario deja vu – all over again. He was supposed to have said he would give NZ Railways away because he was so keen to get rid of this loss-making, poorly run piece of essential infrastructure. TINA.

    Now it’s selling off our essential infrastructure assets by Jokey Hen and Co. Ltd. VIP (Very Inept Politicians.) Why, is the excuse that they are poorly run and costing the country money? It’s all such a rush, I suppose to get money in the putea so they can say ‘We’ve pulled out a plum, And we’re such good boys’ and good managers.

    NACT voters love old myths and fairy stories, they listen in rapt attention with lots of applause at the end and one wonders, and perhaps it’s about two million and one, if NACTs actually understand anything they hear. I think it’s a version of a favourite gorilla joke from A Fish Called Wanda, which would be comparing a NACT voter having the understanding of a gorilla, but I don’t think it is right to demean gorillas which are handsome, quiet-living, community-oriented people unlike NACTs.

  7. Plan B 7

    http://www.interest.co.nz/opinion/66416/opinion-pending-float-meridian-energy-will-shape-whether-asset-sales-programme-seen-su

    ‘Meridian is being marketed as some sort of cut-price, cash-belching machine.

    It is going to be hard now for the Government to talk up Meridian as a quality investment when clearly the company is, as they say, being priced to sell.’

    Even the money sites are expressing concern as this sale looks more and more odd.

  8. AmaKiwi 8

    Labour and Greens should calculate the total of all the crony capitalism give aways and divide it by the number of taxpayers. For argument’s sake, let’s say that amount is $2,000. The 2014 campaign will be fought on, “Key stole $2,000 of your money and gave it to his business cronies.”

    Do the same for asset sales.

    This campaign is going to be about money, how much money has been stolen from you and me.

    (That’s why Parker is now deputy and Robertson shadow speaker. Robertson is a good pitbull, but this campaign will be about Key using smoke and mirrors for financial deception.)

  9. tracey 9

    Lanth

    +1

    Especially when its folks like srylands with a spare 1500 a month for shares who can buy and tax cuts to that end dont stimulate the economy

    keep on ryall russell and make him commit to figures or look stupid saying why not.

  10. srylands 10

    As usual you are all (hysterically) worried about nothing. There is nothing unusual about the terms of the Meridian float – if there are concessions it will be reflected in a higher sales price. The Government is not giving anything away.

    So worry about this – the $4 billion cost of interest free student loans since 2006. If you are so worried about the Government giving away free money we could fix that. No? I thought not.

    • Colonial Viper 10.1

      Let’s see, interest free student loans benefit the young and the next generation of society.

      Privatising the nation’s power assets takes wealth away from the young and the next generation of society.

      Not really the same thing are they, asshat?

    • thatguynz 10.2

      The point went entirely over your head didn’t it Srylands. The point in the OP was to question why we should be offering interest free terms to offshore investors to buy these assets which contrary to what you assert, are likely not to trade at a premium to reflect this. Are we to assume that you think that is perfectly acceptable?

      • Colonial Viper 10.2.1

        It’s a gift to wealthy investors; of course it is acceptable.

        • Tim 10.2.1.1

          :p yes yes – because all that wealth is going to ‘trickle down’ by way of those wealthy investors also being ‘job creators’

    • thatguynz 10.3

      You are however quite right about the injustice of encumbering our next generation with large quantities of debt before they even hit the workplace. Education should of course be free rather than education finance being a wee cottage industry all on its own….

    • framu 10.4

      perhaps, instead of trying to tell the majority of NZers how they are all wrong and your right purely because you have a different opinion, how about you address the point?

      “this taxpayer-funded interest-free loan will be extended to foreign banks. The Nats don’t know how much it will cost.”

      Thats the point. Address that. Stop inventing distractions.

    • Murray Olsen 10.5

      It’s simple to fix the student loan problem – pardon all loans and provide free tertiary education for those of the necessary intellectual ability, with generous scholarships for those of exceptional ability. Repayment could be via community work schemes after graduation. They’ll never do this because no Tories would ever be able to enter university under such a scheme.

  11. tracey 11

    Anne +1

  12. Rogue Trooper 12

    Thanks for the informative Post James.

  13. tracey 13

    Be fair srylands has to try and remember which country and earning bracket he is from.

  14. tracey 14

    Srylands please name 5 publically listed nz companys who deferred payment of 40% and passes over ownership before balance is paid

  15. swan 15

    Of course Ryall is right. To talk about costs is nonsense. The value to investors of the installments will be accounted for in the price. They bid on the shares after all.

  16. Swan 16

    You have a weird sense of humour Felix. Still, the point remains, Russel’s little calculation is meaningless.

    • Colonial Viper 16.1

      Meh, this sweetner (kick back, free steak knives) for big institutional investors was required if English wasn’t going to have to cope with a dirt low embarrassing price for Meridian.

    • felix 16.2

      It’s funny, swan, because you’re claiming a higher price but you’re not saying what it’s higher than.

      Is the govt going to simultaneously sell a bunch of the same shares without the free money bonus? No? Then where’s your higher price? It’s pure fantasy.

      And if it really is true – which you have no way of measuring – that the price is boosted by the same amount as it will cost us to pay the interest on the money we’re borrowing to give to foreign institutions at no cost, then what’s the point?

      If you really, truly believe that the market is all-knowing, then why try to fool it with ridiculous offers which even in your best case scenario don’t leave us any better off?

      • swan 16.2.1

        OK Felix,

        “Which you have no way of measuring”

        Sure, we have no way of measuring, we cant run both scenarios at once. Well maybe they could, but they arent going. So given we have no way of measuring this, how did Russell come up with a figure as precise as $61m?

        “And if it really is true – which you have no way of measuring – that the price is boosted by the same amount as it will cost us to pay the interest on the money we’re borrowing to give to foreign institutions at no cost, then what’s the point?”

        Good question. It will probably not make a huge difference either way. Presumably the government thinks they will win out of the deal however, otherwise they would not have put it up. Just like your local supermarket with its discount on baked beans.

        • Pascal's bookie 16.2.1.1

          Except supermarkets aren’t playing politics.

          The government’s motvations are way more complicated than a supermarket’s.

          One example. we are being told that the share price will be lower due to uncertainty about the L/G power reform plans. Fair enough. We don’t know how much downward pressure is being put on the price, but let’s assume it’s some. Put a figure on it if you want. the government thinks it’s significant enough to decsribe it as ‘sabotage’.

          Now, if a private sector entity was planning a major divestment, with luittle actual pressure, (ie, it wasn;t a faire sale and the numbers on the sale were pretty marginal in terms of cost of borrowing vs foregone dividends) what would they do about an uncertainty in the market that would be completely cleared up one way or the other in about a years time?

          How would they justuify, to their share holders, pushing on with the sale at that point in time rather than delaying the sale until after that uncertainty went away?

          • swan 16.2.1.1.1

            Well the response to that is that the uncertainty may go away, but it may end up on the downside. Better to divest some of that risk now rather than face all of the crystallization of such risks.

            • Pascal's bookie 16.2.1.1.1.1

              Oh right, so the government is being fiscally responsible by divesting itself of these shares due to it’s belief it will lose the next election. Good oh.

        • Pascal's bookie 16.2.1.2

          The point being of course, that the government’s ‘win’ in its dealings aren;t alwasy caught on the balance sheet.

          It needs political wins, and to avoid political losses, and if the crown accounts take a hit to secure them, then that’s what spin is for.

          lap it up swanny, juicy tasty spin.

          At the end of the day though, losses in the crown accounts are sorted through taxation, one way or another.

          • swan 16.2.1.2.1

            That is an interesting position. After all it is the L/G plan that explicitly hits the crown accounts for… political advantage.

            • Pascal's bookie 16.2.1.2.1.1

              Nope. The L/G plan ‘hits the crowns accounts’ to lower costs for citizens, which is politically popular yes. But the govts position hits the crown accounts to save itself from backing down and looking weak.

              • swan

                The governments plan doesnt hit the crown accounts. The risks due to the LG plan exist regardless of the sale.

                • Pascal's bookie

                  But they are realised by selling now instead of waiting until after the election.

                  • swan

                    Which means the crown is able to divest itself of some of this risk at a price where the market thinks there is only a certain probability of the LG plan ever being implememted.

                    • Pascal's bookie

                      Which it only makes sense to do if it thinks it is going to lose the election. Not a lot of sense mind you, but it’s a skerrick of a reason.

  17. Tracey 17

    is srylands still searching for some examples of how normal this is in sharetrading in nz?

    • felix 17.1

      srylands is still searching for NZ on a map.

    • srylands 17.2

      You are probably drunk again. Installment receipt purchasing is common in IPOs because in a thin market they maximise receipts for buyers and sellers. Contrary to infantile left thinking markets are not about winners and losers.

      How many large IPOs have there been on NZ in the last decade? Oh yes fuck all because we have such a thin capital market. Why? Oh yes thats right we have this hysterical opposition to “asset sales”. We just sell each other our houses, vote for left wing councils that regulate land supply, and think we are getting rich.

      So when you sober up start worrying about the real issues. Like South Auckland cleaners subsidising the interest free student loans of Oriental Bay rich pricks’ kids – including the rich prick Green member(s) in Oriental Bay with 3 rental properties. Or the 20% of kids still failing at school. And no it is not because their parents’ welfare checks are too small.

      • Pascal's bookie 17.2.1

        hahaha.

        So we have a thin market because of so few state asset sales?

        Why are the only companies people would be willing to invest in created by the state?

        The money paid for these shares is going to the crown to finance state related stuff. It’s not being invested in growing the companies or anything like it. So instead of ‘buying houses off each other’ these monies are going to the crown.

        Presumably this is good because the government knows how to spend that money better than private investors or something IDK.

      • Saarbo 17.2.2

        Thin Market because people are investing all of their cash in the Auckland property market, making money from the poorest. and yes, as PB states, why is it the State that has to support our capital markets…isnt that telling you something.

        Your thinking has passed its “use by date” srylands.

      • Draco T Bastard 17.2.3

        How many large IPOs have there been on NZ in the last decade? Oh yes fuck all because we have such a thin capital market. Why? Oh yes thats right we have this hysterical opposition to “asset sales”.

        Nope, we’ve had very few large IPO’s over the last decade because the Randian Heroes of capitalism haven’t been creating anything like they promised us they would do if we cut their taxes. I figure this is because a) they can’t because they’re not the ones that actually create wealth and b) with all the tax cuts that they’ve had over the last 30 years they figure they’re doing well enough that they don’t need to go round risking it all.

        So when you sober up start worrying about the real issues.

        I’m still worried about the bludgers known as shareholders. Why is it, you think, that we a small group of people who live high on the backs of others? Why do we allow this theft and exploitation?

      • framu 17.2.4

        so many insulting straw men in one comment

        why do you feel the need to act all pompous and insulting?

      • joe90 17.2.5

        How many large IPOs have there been on NZ in the last decade? Oh yes fuck all because we have such a thin capital market. Why? Oh yes thats right we have this hysterical opposition to “asset sales”.

        The reality – the Randian Heroes fuckwits of capitalism are so piss weak that to even get a large IPO off the ground they’ve had to resort to thieving publicly owned assets.

        http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10747634

        • aerobubble 17.2.5.1

          Dominance of a few sectors of the ears of government have reduce the NZ economy to a hollowed out exercise in capitalism. Competitive housing fueled by low taxation has produce damp, moldy, leaky homes for the majority and a few high priced mansions. National have done little to nothing about the housing crisis, for five years its gotten worse, fueling the exodus of the next generation of company builders overseas. And yeah, it must therefore be the rabid anti asset sellers who also argue for a CGT, for government building to the demand by the poorest groups who everyone agrees the private property market has NO INTEREST in.

  18. Puckish Rogue 18

    You’re missing the point, the point is I get to buy more shares in NZ power companies so its all good (and no I’m not bothered by the share price of MRP)

  19. Tracey 19

    srylands wrote “There is nothing unusual about the terms of the Meridian float –” but cant point to nz examples wich means he is right its not unusual, its unique.

  20. nadis 20

    Without getting into the rights or wrongs of the wider sales process, I would say that instalment payments for IPO’s are quite common overseas. We haven’t seen any here (to my knowledge) but they are used overseas particularly when an issuer is trying to target retail investors – for instance I recall British Gas shares were paid for over three instalments, and I think most privatizations in Europe followed in similar vein.

    In terms of pricing – it’s not actually an “interest free loan” to anyone. Any future cashflow has a value based on the net present value of that cashflow which in turn has three main components: interest rate, time and certainty of payment. Essentially the government has two choices, i.e 1. pay 1 dollar today, or pay 1 dollar minus x in t years time. Now x can be more or less than zero – that depends on the difference between the interest rate you would fund the future purchase at and the net earnings of the company in question, as well as an assumption about the creditworthiness of the person promising to pay.

    There is absolutely no “free loan” element to this – the pricing announced at time of sale will incorporate the difference between payment now and payment in the future. If full payment was required on Day 1 then there would likely be a different price. Just because we don’t explicitly see a number attached t this amount doesn’t mean it doesn’t exist. It is non-controversial, non-political, non- partisan – it is just simple math.

    For a simple description of forward pricing see the wikipedia page:

    http://en.wikipedia.org/wiki/Forward_price

    • Pascal's bookie 20.1

      “Just because we don’t explicitly see a number attached to this amount doesn’t mean it doesn’t exist.”

      But is the number knowable? can it actually be calculated on its own, or is it derived from ‘here are the hard numbers and whatever bit of fudge is left we’ll assume is the number we are after’?

      A lopt of this stuff is kinda silly when you think about it. Like the idea that a hare price represents the value of future earnings, discounted for time. It makes sense as a description of what people are buying, and people try and work from that to come up with math to define that discount and what have you, but at heart it’s a nonsense. Trades are made for lots of reasons, most of them subjective values. You can;t just split the difference or say that all those values are really about the value of future earnings in any objective way.

  21. nadis 21

    Forward pricing is knowable. The only subjective part is the probability of default and for this transaction you can assume that is essentially nil as if you don’t pay the second instalment then you don’t get to own the shares. (Of course if the shares in the future are worth less then the amount owing then that raises some obvious issues).

    Give me a known price now, a known term and an interest rate term structure then there there is only one forward price. It is math and not subjective.

    You’re right about valuation of shares which is why there is typically a wide range of valuations for any particular share from different analysts. Valuation is an opinion not an observable fact whereas a forward price is an observable fact as it is independent of the underlying share value.

    In an IPO process the “fair valuation” is simply the price at which all the stock gets sold so in effect it is a weighted average of all the valuations and demand up to the marginal price at which there is unsold stock. So yes – messy but that’s how any auction process works. When you sell something on trademe it is the same.

    • Pascal's bookie 21.1

      I still don’t get it. You know what the price is in an auction after the auction has been run, not before right?

      If a seller has reasons to get rid of something, then they might sell it for a lower price than they might potentially be able to gte. ie, there may be a ‘fair price’ at which is all the stock which is higher than the price a seller sets. In that case all the stock will still be sold, and the seller will have missed out on the difference.

      It’s that sort of question which makes me think there is a lot of circular hooha involved in these discussions about what prices are.

  22. nadis 22

    I think we are confusing two conversations, 1. what is the price of the share to start with, and 2. how do you price the forward settleing part of it.

    1. is subjective and set by an auction process.

    2. is objective and determined by interest rates, time and dividend rate of the share.

    The offer price for the shares is set by an auction process or bookbuild. The organising broker speaks to all the participating brokers before the announcement and says “how many do you want to buy and at what price?” This sets the offer price at the marginal price at which demand = supply. The price includes (in the minds of investors) an explicit allowance (+ve or _ve) for the impact of the forward settlement.

    There is a lot of circular hooha involved in share valuation but at the end of the day, for every transaction you have a willing seller and a willing buyer – therefore you have a fair price. But valuation by individuals is always going to be subjective and relative, relative to other uses for that money, relative to their opinion on a particular company or industry, relative to their mood etc.

    One of the most succesful investors ever, and the original proponent of value investing (Warren Buffett cites him as the second most influential person in his life) was Benjamin Graham who summed up valuation as:

    “The market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

    • felix 22.1

      Not really “countless individuals” though innit.

      In reality it’s a small group of financial institutions who all know each others’ positions inside out and all know exactly how much they can screw out of the hapless (or willing) NZ govt.

      There are no market forces at play here, not in the abstract and infinitely democratic sense you’re trying to imply.

      • nadis 22.1.1

        Felix- not trying to imply anything wrt NZ. I was just trying to explain how the forward pricing mechanism worked and that it is not in fact an interest free loan. I thought I made it quite clear I wasn’t commenting on the NZ sales process and can’t see where I have. And last time I checked neither Ben Graham or Warren Buffett had much to do with minuscule privatisations in an under-developed, illiquid economy. The real definition of an efficient market is not that the price on display at any time is an accurate measure of fundamental value, rather I think an efficient market is one where you can transact efficiently in a cost and liquidity sense, but the price you transact may be good or bad value.

        And Tracey – again without getting into the good/bad argument – whether you sell something now and get the money later is irrelevant. /bThe price takes account of the financing cost./b By all means debate the asset sales good/bad argument but don’t get bogged down in talking about financing balance sheet items – that’s not relevant to the argument you are trying to make. The reason the gummint is doing instalments this time is because with MRP trading at an 11% discount, anything to make this more attractive to the marginal price buyer (i.e., retail investor) is worth a try, and putting shares on HP might appeal to some investors who havent considered the implicit cost. It’s pretty much the same deal as you get from Noel Leeming when you buy your tele interest free, no payments for 2 years. Guess what: It’s not actually interest free.

        • felix 22.1.1.1

          Sorry nadis, I don’t follow. What do “efficient markets” have to do with electricity generation in NZ?

        • Colonial Viper 22.1.1.2

          rather I think an efficient market is one where you can transact efficiently in a cost and liquidity sense

          You just totally and unbelievably made that shit up.

          Investorpedia relates “efficient markets” as the following:

          theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

          Which is of course not only fictional bullshit in of itself (e.g. the idea that not only are all relevant facts known but that all market participants know those facts all at the same time), but it is nothing related to your own fictional bullshit made up definition of “efficient”.

          • nadis 22.1.1.2.1

            geez you make commenting on this website hard work. You also seem very keen to proscribe negative motives to anyone that has even a slightly contrary view to yourself. Sanctimonious. I think the first clue you missed was when I said “I think” which in most situations indicate that what followed was my opinion – the opinion of someone with an engineering degree, a masters in mathematical finance and 20+ years of working in financial markets. Any one who has been remotely connected to markets or sudied economics or finance since the 1960’s knows exactly what the classic Markowitz definition of efficient markets are. They would also know that MPT relies on about 13 or so base assumptions, almost none of which are actually practically present in financial markets. Assumptions like all investors are rational and risk averse, all investors are trying to maximise utility for low risk profits, there are frictionless borrowing and lending costs, correlations are both constant and measurable, volatility is the same thing as risk, asset returns are normally distributed etc etc. I could go on.

            I didn’t totally and unbelievably make that shit up – I gave you my opinion on what I believe to be a more appropriate definition of what is market efficiency. Catch up. As you are the master of investopedia look up behavioural finance or read some of the essays by James Montier.

            And btw I agree with Felix – very little in NZ markets – listed or otherwise – has a much acquaintance with market efficiency.

  23. tracey 23

    Funny though how we needed to sell these assets first and foremost to reduce debt but now we can defer 40% until 2015.

    seems strange if its such a good idea this hasnt been done in nz before.

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