The Dim-Post

September 20, 2013

The million dollar press release: sometimes you just have to applaud

Filed under: finance — danylmc @ 1:29 pm

The Herald reports:

Retail investors in Meridian Energy will pay $1 per share as a first installment and no more than 60 cents per share as a second installment – up to 30 cents less than institutional investors.

At a .30c price differential ‘Mum and Dad’ retail investors would be crazy not to buy a couple of thousand dollars worth of Meridian shares and then flick them on as soon as they float, If you buy $2000 worth of shares and sell them the day of the float at the institutional price you make $400, no risk. Minimum. The shares are probably undervalued, so will probably go even higher than that.

It’s a big loss to the taxpayer of course. Millions of dollars thrown away for nothing except, crucially, Bill English and John Key will get to put out a press release citing the huge number of New Zealand ‘Mum and Dad’ retail investors who pre-bought Meridian shares.

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29 Comments »

  1. Au contraire. You would be mad not to wait until the next float, when mums and dads will be sold the shares for tuppence and will also qualify for a set of stainless steel cutlery.

    Comment by Adrian — September 20, 2013 @ 1:36 pm

  2. The way I read it you can’t flick it off at the float – the second payment is required to be 18 months later, and anyone buying your first-installment shares is still obliged to make that payment at the end of the 18 months (presumably without the 60c cap if they don’t already qualify for it). So you only get the advantage of the guaranteed price if you hold your shares for those 18 months.

    Am I wrong?

    Comment by JG — September 20, 2013 @ 1:43 pm

  3. It’s a big loss to the taxpayer of course.

    Hey – I’m a taxpayer. Why aren’t you applauding the large net-gain in personal wealth I will make by taking advantage of the Government’s increasing political desperation?

    Comment by Flashing Light — September 20, 2013 @ 1:45 pm

  4. This is all giving me the vibe of an overly complicated lunch time playground sandwhich trade

    Comment by Michael — September 20, 2013 @ 1:51 pm

  5. If you buy $2000 worth of shares and sell them the day of the float at the institutional price you make $400, no risk.

    It kind of depends on what the price signal is at the time, which is likely to be a dump given instos will factor in the 30c.

    + what JG said – though I’m not sure you will be obliged to hold the stock, even though you’ll be up for the installment payment.

    Comment by Gregor W — September 20, 2013 @ 2:05 pm

  6. $400 dollars you say. That isn’t nearly as generous as Michael Cullen was with Kiwisaver being open to retired people.
    I was over 60, and retired, when he brought the mad scheme in and opened it up for people like me.
    I put in $100 during the first month. The poor taxpayer then gave me another $1000. At the end of the year for 5 years I put in an amount that meant a total of $1044 for the year. The poor taxpayer then matched it for 4 years and matched half it for the final year. As soon as I could I pulled the lot.
    So I put in a total of about $5,220 and the taxpayer gave me about $5,700. Why? It certainly didn’t mean I was saving any more for my retirement.
    What, apart from buying votes, was the mad Michael thinking of when he set this stupid scheme?

    Comment by Alwyn — September 20, 2013 @ 2:29 pm

  7. “…What, apart from buying votes, was the mad Michael thinking of when he set this stupid scheme…?”

    Because it is probably still administratively cheaper to do it the way it was set up than try to account for every immoral thief who tries to game the system and rip off the taxpayer?

    Comment by Sanctuary — September 20, 2013 @ 2:37 pm

  8. @JG,

    No – you aren’t wrong. However, the Government also claims in its press release that during that 18 months you should get a dividend return of over 13% on the $1 you’ve already paid for your share.

    So … pay $1 per share at the end of October. Get a return of 13.4% on that investment over the next 18 months (from dividends diverted from the Crown accounts). Then pay the extra 50-60 cents per share in April 2015, when the institutional investors are paying up to 30 cents a share more – pretty much guaranteeing that the market price will be above the $1.50-$1.60 mark.

    How desperate are these guys not to have another MRP experience?

    @Alwyn,

    Maybe YOU weren’t saving any more for your retirement, because you are SUCH an amazing person. But given that almost 2 million people are a part of it, I think that you might be atypical.

    Also, if you think it such bad policy, the correct person to contact resides in the Beehive.

    Comment by Flashing Light — September 20, 2013 @ 2:43 pm

  9. FL – why would instos just not hold off @ IPO and wait for the bounce? I would only take a couple of days of no buy activity for people to panic.
    Otherwise they’d be paying over the odds.

    Comment by Gregor W — September 20, 2013 @ 3:03 pm

  10. Ah Sanctuary, you are so innocent.
    When Cullen set the scheme up he went to some trouble to claim that Mps should NOT be able to take up membership of the KiwiSaver scheme as they already had a very, very generous scheme of their own.
    What actually occurred?
    Well there are a minimum of 20 Labour MPs (out of 34) who have KiwiSaver schemes.
    There are a minimum of 10 Green MPs (out of 14) who have KiwiSaver schemes.
    You can see who they are by looking at the MPs Pecuniary Interests Report on the Parliamentary website.
    These presumably come into the category of “immoral thieves who are gaming the system and ripping off the taxpayer”.
    After all they were the people that Michael Cullen himself claimed should not be able to access the system.
    The reason I say a minimum of 20 Labour and 10 Green Mps is that I have only counted them if they say that at least one of their Superannuation schemes is a KiwiSaver fund. Others may also have such funds but they have not used the word in the description of their scheme.

    @JG. I have never claimed in any way that I was an “amazing” person. How could I possibly save more toward my retirement? I was already retired.

    Comment by Alwyn — September 20, 2013 @ 3:17 pm

  11. @Gregor,

    Isn’t it a bit of a prisoner’s dilemma – the more institutions who sit out the IPO, the lower the offer price for them? So, say you are ACC (or whomever). You want X number of shares for your portfolio. Do you ask for X in the IPO (knowing that if other institutions do likewise, you will drive up the price you’ll have to pay)? Or do you ask for less-than-X, hoping to pick up the extra from spooked retail investors who were counting on selling to make a quick buck … knowing that there may be other institutional investors out there following a similar strategy (which may then push the price higher than it would have been if you’d just tried to get your shares at the IPO stage).

    I suspect the promise of 13.4% return for 18 months will settle the issue … if institutional investors haven’t bought the shares in October, they miss out on this.

    Comment by Flashing Light — September 20, 2013 @ 3:20 pm

  12. @Alwyn,

    No. You are AMAZING in that you are attempting to completely derail this comment thread with your Grandpa Simpson like meanderings. Do you have some comment on the Government’s Meridian Energy share proposals? No? Then STFU.

    Comment by Flashing Light — September 20, 2013 @ 3:22 pm

  13. FL – fair call.

    Unless large funds act in – unspoken of course – a cartel like fashion to effect no large trades which of course, in the financial sector, would be……unthinkable.

    Comment by Gregor W — September 20, 2013 @ 3:32 pm

  14. @Alwyn, are you contending that because you believe the Labour-led government stupidly gave money to a small selection of people, that it’s okay for the National-led government to stupidly give money to a small selection of people?

    Because if that’s the logic we use to hold our governments to account, we’re all doomed.

    Comment by izogi — September 20, 2013 @ 4:10 pm

  15. @izogi.
    Why do you say that the National-led government is “giving money away”?
    Look at what happened to Mighty River Power. The Government sold shares at $2.59 each and took in about $1.7 billion.
    The shares are worth, according to the market about $2.20 each which means that they are worth about $1.5 billion.
    With the MRP deal the Government didn’t “give” anyone anything. They managed to sell for $1.7 billion something that is apparently worth only $1.5 billion
    Do you have any good reason to believe that Meridian will be any different?

    If you really want an example of a giveaway the most spectacular was the vote-buying of the interest free student loans. That’s up to about $12 billion owed at the moment. Now there’s a truly dramatic waste of the taxpayers money.

    I brought up the information about the Labour and Green MPs because I thought Sanctuary might be interested to know what a large percentage of the MPs on the left side of politics appear to be what he classes as “Immoral thieves”.

    Disclaimer. I bought shares in MRP and plan to buy more in Meridian. I think they are a sensible long term buy.

    Comment by Alwyn — September 20, 2013 @ 5:35 pm

  16. Don’t worry Alwyn the rabid brothers always get het up about rational comments.

    Comment by toby — September 20, 2013 @ 6:14 pm

  17. Do you have any good reason to believe that Meridian will be any different?

    You clearly do, as you then say I bought shares in MRP and plan to buy more in Meridian. I think they are a sensible long term buy.

    Also, once again, if you have a problem with interest free student loans, the guy to complain to about them is the current National Party Prime Minister … who is about to add to the example of middle class welfare you cite by providing one hell of a sweetheart deal for baby-boomer investors like you. Shocking, isn’t it?

    Comment by Flashing Light — September 20, 2013 @ 8:04 pm

  18. @Flashing Light

    Well I am down a bit on what I paid for MRP but I still think they are a good investment and over the years of investing I’m a little ahead of the game.
    Instalment receipts are actually a fairly normal way of carrying out an IPO.
    The Australian privatisation of Telstra is an example of the process.
    I’m not particularly happy with the current Governments “middle class welfare” as you label it, although at least they cut back a bit on the KiwiSaver generosity and have limited the ability of people to get student loans when there is never going to be any possibility of paying them back.
    On the other hand I am not happy with ANY Government getting involved in running companies. No politician is willing to admit that they might have made a mistake and that they should close down an operation that they started.
    Refer for example to the MP for the Wairarapa electorate who seems to think that the Government should order Air NZ to continue flights to Auckland and Christchurch, even though there is almost no demand.
    As for calling me a baby-boomer. Surely not. Weren’t they from about 1947?

    Comment by Alwyn — September 20, 2013 @ 8:53 pm

  19. I brought up the information about the Labour and Green MPs because I thought Sanctuary might be interested to know what a large percentage of the MPs on the left side of politics appear to be what he classes as “Immoral thieves”.

    However, the actual effect was to declare yourself the moral equivalent of a politician, which is just about as unambitious as it gets in moral terms.

    Comment by Psycho Milt — September 20, 2013 @ 9:38 pm

  20. Perhaps those kiwisaver accounts were established before they became MPs?

    Comment by nigelsagentinthefield — September 21, 2013 @ 12:58 am

  21. “At a .30c price differential ‘Mum and Dad’ retail investors would be crazy not to buy a couple of thousand dollars worth of Meridian shares and then flick them on as soon as they float, If you buy $2000 worth of shares and sell them the day of the float at the institutional price you make $400, no risk”

    Er, I think yo have misunderstood the situation Danyl. The retail investors wont know whether or not the price cap will be of relevance until after they have committed to buying shares. So not “no risk”.

    Comment by swan — September 21, 2013 @ 2:32 pm

  22. NZPower to the people!

    Comment by deepred — September 21, 2013 @ 3:46 pm

  23. If you don’t hold them for 18 months you pay the full market price, not the capped-at-$1.60 temptation….. Caveat something or other, eh! The real downside is likely to be year three…. don’t think I’ll bother. Doug

    Comment by Doug McNeill — September 21, 2013 @ 4:02 pm

  24. Just so everyone’s clear, the scam on this one is as follows.

    They sell shares worth $1.40 or so. You pay $1.00 down-payment, and no more than $1.60 total. This is the “60c”.
    Institutional investors get the same shares, up to $0.50 down-payment, and no more than $1.40 total. This is the “+30c over retail”.

    That’s “30c less” than the institutional investors. Now, you get to make 13% on that, which they are legally required to tell you is 8% because it really is just 8%, on $1.40. Less your loss on the drop in price, less the transaction costs, less further costs if you try to sell, risks associated with future legislation, and so on.

    And never mind that the 8% is mostly composed of borrowing on ever-inflated book value of aging infrastructure rather than actual trading profits, which just quietly are only about 1.3% PA for Meridian through last decade, and even worse since the collapse of Christchurch.

    Comment by tussock — September 21, 2013 @ 7:30 pm

  25. I refuse to buy shares in companies I already own. Usually….people go to jail for stuff like that.

    Comment by Steve (@nza1) — September 21, 2013 @ 9:14 pm

  26. I think the big “story” in this might come further down the track when the share price is lower than $1.60 yet “poor mums and dads” are being “forced” to pay out the final .60c call on their shares – many will claim to have been unaware of the risk.. probably because they took financial advice from idiotic partisan blog posts (Such as this one)

    Comment by Andrew M — September 22, 2013 @ 9:12 am

  27. Sell the family home and put all the equity into Meridian. Then you are guaranteed really big bucks.

    Comment by Daniel Lang — September 28, 2013 @ 9:26 am

  28. #27: And let’s not forget the Blue Sky Mining Co, Koch Industries, Monsanto, and Philip Morris.

    Comment by deepred — September 28, 2013 @ 5:23 pm

  29. It’s amazing what you can sabotage when you are in opposition eh lads.

    Comment by toby — September 29, 2013 @ 7:36 am


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