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Govt announces loyalty bonus for Kiwis buying Mighty River Power shares; Key says to change investment psyche of NZers away from housing

Govt announces loyalty bonus for Kiwis buying Mighty River Power shares; Key says to change investment psyche of NZers away from housing

The government wants to change the investment psyche of New Zealanders who favour housing and bank deposits, by selling partial stakes in four state owned energy companies, Prime Minister John Key says.

Speaking after announcing a loyalty scheme for New Zealand investors allocated shares in Mighty River Power, Key also said the National government would have gone ahead with the 'mixed-ownership model' policy even if the government's books had not been in the red.

That was because private ownership would help the companies perform better, and introduce more companies for people to be able to invest in.

The government wants to sell down up to 49% of Mighty River Power, Genesis Energy, Meridian Energy and Solid Energy. First off the block is Mighty River, with the sales process to begin by the end of September. The government also wants to sell down its three-quarter holding in Air New Zealand to no less than 51%.

Loyalty bonus

On Sunday, Key announced a minimum application size for Mighty River Power share parcels of NZ$1,000. He said New Zealanders seeking up to NZ$2,000 worth of shares would not have their offer scaled back. 

"In other words, New Zealanders applying for up to NZ$2,000 worth of shares are guaranteed to receive the shares they apply for," Key said.

“Big institutions aren’t getting any guarantees, so this is another way we’re putting everyday New Zealanders at the front of the queue," he said.

The government would also offer New Zealanders a loyalty bonus for holding onto the shares.

"New Zealanders who keep their Mighty River Power shares for a certain length of time will get a loyalty bonus, in terms of additional shares. We’re working through the time period involved, but it’s likely to be somewhere around three years," Key said.

The government expects about 200,000 people to buy share parcels in Mighty River Power.

Change the psyche

Speaking on TVOne's Breakfast programme on Monday morning, Key said the government wanted people "to buy the shares and hold onto them for a while – not buy them just to sell them overnight."

"Obviously people are free to do that, but we’re giving them an incentive to hold on to them," Key said.

“What we’re trying to do is change the psyche. New Zealanders typically at the moment buy - if they can afford to buy assets – houses; they might put money in the bank; they might buy a few bonds as securities; they do buy shares, but a lot of them don’t," he said.

"So we’re trying to change that and make it accessible, easy, understandable, and something that they might hold for a period of time.”

The argument for selling the partial stakes that it would help control public debt was "compelling in its own right," but was only one of a number of factors for the policy.

“There’s a lot of other factors: Making the companies perform better, giving people places to invest," Key said.

Asked whether a National government would have introduced the policy even if the government's books were in surplus Key said, “totally.”

“In the sense that I think the mixed-ownership model’s proven to be very successful. Air New Zealand’s a great example of that. There’s just a slightly greater degree of separation because they have...private sector shareholders," he said.

“I think that helps the situation.”

Labour attacks 'Ponzi scheme'

Labour Party SOE spokesman Clayton Cosgrove said the loyalty scheme meant those who could not afford shares in the energy companies would be subsidising those who could afford them. 

“This is a ponzi scheme that punishes taxpayers in more ways than one," Cosgrove said.

“The proposal to give New Zealanders who invest in companies like Mighty River Power a loyalty bonus for hanging onto their shares shifts the burden of National’s bad idea on to taxpayers who can’t afford to buy in,” he said.

“Why should those who don’t plan to buy shares, for whatever reason, have their taxpayer dollars spent subsidising those who can?"

“New Zealanders already own these assets. If Kiwi ‘mums and dads’ have a couple of thousand dollars the best advice would surely be to pay down the credit card," Cosgrove said.

“Taxpayers are already taking a hit in lost dividends, this is a second blow.

“The Government says it is serious about paying down debt. But basic arithmetic will tell you that we can gain more from the revenue generated from these well-performing assets than the cost of borrowing," he said.

'Buying support for asset sales'

The Green Party said confirmation of the loyalty scheme meant the government was buying support for the policy.

“The Government’s fiscally reckless plan to sell off these productive state owned assets will be made even worse by this cynical move to offer potentially hundreds of millions of dollars in bonuses to wealthy NZ buyers," Greens co-leader Russel Norman said.

“This is deeply cynical ploy to win the public over to the Government’s unpopular privatisation agenda, but it wont work the New Zealand public will see through it," Norman said.

"There is still no detail on how much the loyalty scheme will cost, and it appears that the Government has not budgeted for the scheme. We know from overseas examples such as Queensland that it can cost tens or hundreds of millions of dollars. We also know from the Queensland example that loyalty schemes don’t work, when the price of shares went up the shares got on sold."

“The Government will also be spending at least NZ$120 million on selling the assets which is a further waste of money to effect this transfer of wealth from everyone to those at the top. It also undermines the Government’s already shoddy business case for selling assets that earn an over 10% return to pay down debt that costs around 4%," Norman said.

“They also look likely to list the shares on the Australian stock exchange which will further guarantee that the shares end up in foreign ownership," he said.

“The best way to ensure that ownership stays in New Zealand is to not sell the assets. Its as simple as that. Most New Zealanders wont be able to afford to buy shares and there is no guarantee that those who can wont sell them down the line."

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"New Zealanders who keep their Mighty River Power shares for a certain length of time will get a loyalty bonus, in terms of additional shares. We’re working through the time period involved, but it’s likely to be somewhere around three years," Key said.


No doubt to be followed by a rights issue to raise new capital in the mode of Brierley Investments Limited. This is how not so rich New Zealanders will be tipped out of their holdings or at best have them diluted - the rights issue will swamp the bonus issue and the rights will be sold to the nearest predator. Do I have to watch this scenario play out again?


Thereafter, with the connivance of goverment, mounting debt will be utilised to hollow out (pay extreme unaffordable dividends) the company and rack up the share price for sale back to the unsuspecting.


Kiwirail , Air New Zealand and even Telecom are fine examples. The latter thankfully remains in private ownership. The architect of this firm's financial demise was overseen  by no other than Rod Deane.


In the Queen's Birthday and Diamond Jubilee Honours List 2012 Sir Roderick was appointed a Knight Companion of the New Zealand Order of Merit[2].h


I'm picking the 'bonus shares' will be factored into the share value from the get-go, so not really a bonus at all. But getting the public to buy the assets we already own - brilliant!


I wonder if the unresolved water rights issue, that will just be put aside for the moment, is also going to be priced into the share value?


One reason the govt has to offer the incentive is to overcome Kiwi's love of property investment.


Really, if they simply took away the incredible tax advantages offered by property (claim costs against your primary income while building the asset, then sell tax-free), there would be a level playing field.


Providing an effective subsidy for one investment means you have to offer a subsidy for the alternative.