John Armstrong: Govt baiting the Meridian shares hook

Clayton Cosgrove. Photo / NZPA

But wait, there's more. The best line after yesterday's announcement of the details of the Government's float of shares in Meridian Energy came from Labour's Clayton Cosgrove: "What's next? A free set of steak knives?"

Indeed. National's offer to might-be investors in the sale of up to 49 per cent of Meridian has a sales pitch worthy of a Suzanne Paul. Maybe one even better than the Wonder Woman of the Infomercial World could come up with - free money in the form of interest-free loans to share buyers.

National is conscious that the fall in Mighty River Power shares since their issue price of $2.50 will have spooked small investors. With Meridian, National is trying to make those investors an offer they will find hard to refuse to take up.

A cursory analysis suggests the Meridian float offers slightly more value than the bonus shares incentive in the Mighty River Power offer. The bait in the Meridian float hangs on payment of the shares by instalment - 60 per cent upfront and the rest 18 months later.

This not only gives investors financial breathing space. They will not have to pay more in the second instalment even if the share price rises in the interim.

Moreover, investors will get the company's full dividend even while they do not fully own the shares. They will also be able to claim imputation credits, thereby cutting their tax bill.

Investors will be able to get extra cash by investing the final payment elsewhere during the interim 18 months before it is due. The risk remains, however, that the Meridian share price falls after issue. If it rises, however, investors will be able to sell their initial payment on each share - known as an "instalment receipt" - at a profit.

The carrots follow from the less than outstanding float of 49 per cent of Mighty River Power. A big questionmark remains as to the wisdom of rushing another and bigger float in a state-owned generator so soon after that.

But the Government is pressing ahead for three reasons. First, it does not want to give any impression that it is getting jittery about its flagship privatisation policy.

Second, it could have sold the planned 49 per cent of Meridian in separate tranches. But this would have pushed out the sale of shares in the remaining state-owned generator Genesis Energy - now scheduled for early next year - until much closer to next year's election.

Third, steak knife jibes or not, the Government needs the money for its Future Investment Fund which is paying for expensive infrastructure-related projects without which National would look rather naked in terms of electoral appeal.