The Dim-Post

July 23, 2012

Now with 1.1% more CEO-style visionary leadership

Filed under: finance — danylmc @ 7:56 am

I’d quite like to live in the reality in which hundreds of thousands of ‘mum and dad’ New Zealanders email their financial advisors this morning to find out how much cash they can liquidate from their investment portfolios to buy $1000 Mighty River Power shares and thus qualify for the loyalty bonus.

But guess who isn’t eligible for the loyalty bonus? KiwiSaver and other institutional investors. So the two million New Zealanders who invest in KiwiSaver schemes miss out, unless they have an extra few grand floating around which they can invest in the stock-market, instead of say, paying off their mortgage.

And, as usual, Key and English are such amazing businessmen they haven’t bothered to figure out how much this will cost, or where the money will come from.

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17 Comments »

  1. And wont bonus issue dilute the share pool, and will reduce the share price, so you effectively pay for your own bonus shares?

    Comment by Dv — July 23, 2012 @ 8:46 am

  2. It won’t necessarily dilute the pool as the Govt. will probably hold shares back to maintain 51% three years from IPO.

    However, in announcing the bonus scheme in advance, analysts will effectively build the cost of that price into their value calculation so in general, it will skew the IPO price and more specifically, nominal value / EPS dilution will occur when those stocks are introduced to the market in 3 years time (though oddly, as Danyl points out, they won’t be issued on a pro rata basis, effectively valuing some shares more than others even though there doesn’t appear to be an indication from English that shares will be issued in different classes).

    Bonus shares would generally be issued as part of either a broader programme of capital expansion to keep existing stockholders sweet, or as a soft way for a company to retain earnings otherwise issued as dividend.

    In this case it will be neither and as you suggest DV, likely to be relatively benefit neutral to the shareholder, but worse than that, an effective soft subsidy via other institutional investors and the taxpayer.

    Comment by Gregor W — July 23, 2012 @ 10:08 am

  3. It’s worth noting that the ‘in three years time’ bit requires a future Government to play ball. Convention says that you can not bind a future Government, but the public outrage at bonus shares being withheld might be enough to force the issue. I look forward to Labour campaigning in 2014 on a platform of canceling the program (Yeah, right.)

    Comment by Vanilla Eis — July 23, 2012 @ 10:47 am

  4. Shush, be quiet. We all know the money’s coming from the Future Investment Fund!

    Seriously though, I’m disappointed that Kiwisaver investors miss out. If it weren’t for that one important fact, I’d be very happy with this concept of loyalty shares.

    Comment by Daniel Lang — July 23, 2012 @ 12:04 pm

  5. Kiwi mums are good. If your mum doesn’t buy these shares, she doesn’t love you. Or maybe she’s a solo mum. They’re not Kiwi mums. They should stop being mums. Bad mums!

    There should be a loyalty bonus for mums who stay with dads. Good mums. Kiwi mums.

    Comment by sammy 2.0 — July 23, 2012 @ 12:41 pm

  6. You’re onto something there, Sammy. And perhaps some bonus shares for beneficiaries who enrol their kids in preschool, enrol in a PHO and have voluntary sterilisation performed.

    Comment by Phil — July 23, 2012 @ 1:40 pm

  7. Give Kiwisaver Funds the right to vote, and you can be sure they’d also get the right to a loyalty bonus!
    This has to be, with foresight, one of the world’s most stupid privatisation exercises: sell just enough shares to incur the costs of a thin distributed shareholder base, but not enough to secure a premium price for transfer of real control over the assets and the investment programme.
    They have 4 power companies. Why not sell 1 or 2 in total, obtaining maximum price, but keep two or 3, therefore keeping a competitive hand in the electricity market “for the benefit of all NZers”?

    Comment by Clunking Fist — July 23, 2012 @ 1:43 pm

  8. I’m looking forward to the announcement that for every 10 shares held, ‘mum and dad investors’ get a free boat-person.

    This has to be, with foresight, one of the world’s most stupid privatisation exercises

    Indeed CF.
    Either divest completely to obtain a price premium and manage the public interest via the regulation of energy and access prices, or maintain the status quo.
    Somehow JK and chums have managed to come up with possibly the worst scenario imaginable.

    Comment by Gregor W — July 23, 2012 @ 1:57 pm

  9. Shush sammy! The cackle of Paula Bennett’s laughter as she announced axing of benefits to anyone with an outstanding arrest warrant was chilling. Because clearly, anyone the police issue an arrest warrant for is guilty – hey, we can save more for the taxpayer by axing those unnecessary judges and juries…

    P.S. I think you meant ‘Mighty River Power share packages of at least $1000′ Danyl, the individual shares won’t be $1000, I suspect. Interesting that Key’s mom ‘n’ pop rhetoric allows majority NZ owned companies to buy in as ‘mom’ or pop’. Apparently they aren’t really ‘big institutions’ getting a guarantee… except they are.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10821290

    Comment by bob — July 23, 2012 @ 2:36 pm

  10. Gregor, I don’t see how that’s true. This way Key’s mates get paid to sell the shares, paid again to manage the bonus issue, then paid a third time to manage the buy-back. It’s win-win-win.

    Comment by Moz — July 23, 2012 @ 6:30 pm

  11. What’s good for the syndicate is good for the country

    Comment by 1st Lieutenant Milo Minderbinder — July 23, 2012 @ 6:52 pm

  12. The cackle of Paula Bennett’s laughter as she announced axing of benefits to anyone with an outstanding arrest warrant was chilling. Because clearly, anyone the police issue an arrest warrant for is guilty – hey, we can save more for the taxpayer by axing those unnecessary judges and juries…

    I’m not sure a govt informed by this kind of incoherent non-sequitur would be an improvement on the current one…

    Comment by Psycho Milt — July 23, 2012 @ 7:27 pm

  13. “And, as usual, Key and English are such amazing businessmen they haven’t bothered to figure out how much this will cost, or where the money will come from.”

    Actually they are both puppets.

    Key is a lightweight Wall Street cowboy (which is why he lives in Hawaii and holidays in NZ).
    English is a true blue “born to rule” economic ideologue (who does not understand legitimate expenses).

    National Party policy is driven by who are the major funders.

    Key and English are doing what they are told to do. Their strings are being pulled. No wonder they are a couple of jerks.

    Comment by peterlepaysan — July 23, 2012 @ 7:54 pm

  14. @ psycho – it was a bit obtuse, sorry. I was just struck by how National would view sammy’s satirical dig at asset sales (buy 2 for the price of 1 solo mum) as valid policy prescription. Witness the bizarre Bennett dog whistle on cutting benefits to anyone police issue an arrest warrant for. Totally divorced from fact, yet National keep playing such cards…

    Comment by bob — July 24, 2012 @ 5:28 am

  15. #3: I’ve said it before, and I’ll say it again: the price of buying back Mighty River et al can be driven down just by Cunliffe saying, “I’ve got an unbundler and I’m not afraid to use it!”. Or getting on the phone to the Commerce Commission.

    Comment by DeepRed — July 24, 2012 @ 1:38 pm

  16. @sammy, PsychoMilt and bob: It also goes to show that Key & Bennett’s only Plan B is the 3 D’s: Divert, Divide & Dehumanise.

    Comment by DeepRed — July 24, 2012 @ 1:42 pm

  17. @ DeepRed – yeh, I would have thought so, but the Nats seem to be ramping up their programme. It seems they’ve realised most of the voting public pay no real attention to ‘beltway issues’ like privatisation of SOE’s, and vote accordingly.

    Which raises deeper questions of NZ democracy -how can MP’s remain in power when they implement policies opposed by large majorities of the public in all reputable polls (whether it’s SOE sales or S59 laws, etc)?

    Eliminating the 5% MMP threshold would be a start (there is an inherent 0.83% threshold), and being able to recall electorate MPs midway through a term would be a start…

    Comment by bob — July 24, 2012 @ 3:11 pm


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