Bernard Hickey: SOE floats must hit Goldilocks standard

Karapiro Hydro Dam. Photo / NZ Herald

Opponents may not like it, but the Government did win a mandate for its mixed-ownership model (MOM) for partial sale of state-owned assets.

So the focus should now be on ensuring the MOM achieves its one legitimate goal, which is broadening and deepening investor involvement in the stock market.

These floats have to be "Goldilocks" floats: not too hot and not too cold. If the price rises too much from the initial public offering (IPO) float price, the Government will be accused of leaving too much on the table for profiteers "stagging" the issue.

If the price doesn't rise at all from the IPO price, the Government will be accused of leaving nothing on the table and strangling the floats at birth.

Making sure the first float (most likely Mighty River Power) hits the Goldilocks target will be crucial to ensuring the floats of Genesis Energy, Meridian and Solid Energy over 2013-14 are successful, too.

The investment bankers will have to earn their fees by recommending a price that is just right for investors.

The shares sold in the floats also need to be spread in the right way. If they are sold too widely, people may buy shares they don't understand and can't afford. That would undermine the floats' success, both financially and politically. People deep in mortgage or debt should not consider buying these shares and any promotion should make that clear, particularly if the floats are being opened up directly to investors rather than through brokers.

But if the floats are pitched too narrowly, just to the clients of brokers and professional investors, they would fail to achieve the Government's aim of widening New Zealand's "ownership" society.

To sell up to $7 billion worth of shares and to deepen our savings culture and stock market, the floats will need to introduce a new generation of investors to stocks.

The floats are an opportunity to give investors "training wheels" so they can eventually be involved in a deeper way, including buying shares in riskier, privately owned companies. These floats will be of established and growing companies that can be explained to a broad range of investors.

Mighty River Power owns all the hydro dams on the Waikato River and the geothermal plants near Wairakei. It sees its future as growing the output of geothermal power and the technology around it. It is also investing in this renewable and carbon-free form of power generation in the United States, Germany and Chile.

Hopefully the prospectus will include information that a wide swathe of New Zealand investors can understand and use.

And let's hope Mighty River Power's MOM is the Goldilocks price: not too hot, not too cold.

bernard.hickey@interest.co.nz