Q: I pre-registered for Mighty River Power shares and was all set to invest $5000. My main reason for buying was to keep the company in the hands of New Zealanders, and also to get the bonus shares by holding onto the shares for two years. Now I realise that my KiwiSaver provider is going to buy shares, so is there any point in me buying shares as well? I am also worried about the effect that the Labour-Green proposals will have on the share price. I am 48 years old and have just under $30,000 in my KiwiSaver account.
A: The Government has run a thorough and expensive marketing campaign for the Mighty River Power share offer. While getting over 400,000 people to pre-register must indicate success, they won't know until the close of the offer how many of these will follow through with an application. The Labour/Green proposal to create a Government-controlled buying agency to purchase electricity stopped some in their tracks and was significant enough to cause an overnight hold in the offer process last week while a Supplementary Disclosure Statement was added to the original offer document, which now runs to 268 pages.
At face value (or what you may glean from the TV ads) Mighty River Power looks like a reasonably attractive investment with a dividend in the 6-7.7 per cent range and a bonus to individual investors who hold their shares for at least two years. But is it better than other shares readily available on the NZX? It is certainly not without risk - everything from Potential Effects of Climate Change to Treaty of Waitangi and Other Claims are identified over the 11 pages of What Are The Risks? in the offer document, and that was before the Labour/Green proposal.
Investors will not know how much the shares will cost until 8 May. The offer document indicates a price range of $2.35 - $2.80 per share, which means that Government is set to receive $1.6 - $1.9 billion. The added uncertainty created by the Labour/Green proposals may see the price struck at the lower end of the range, which would be good for investors as they will get more shares for their allotted funds, but not so good for the Government (and taxpayers) who will see 49 per cent of their precious asset sold off for millions less than they hoped.
Several KiwiSaver providers have announced their intention to buy shares in Mighty River Power for their investors and are likely to do so despite the ructions of the past week. As you would expect, fund managers make investment decisions in a very different way to retail investors. Some of them use index tracking and will buy into Mighty River simply because it is likely to be one of the 10 largest companies listed on the NZX. Mighty River Power shares may comprise 1-2 per cent of total assets in a KiwiSaver fund, or slightly more for those funds that specialise in Australasian shares.
