Days to the General Election: 22
See Party Policies here. Party Lists here.

Amanda Morrall talks to some of the financial experts about what investors can expect from the SOE sell-off

Amanda Morrall talks to some of the financial experts about what investors can expect from the SOE sell-off
Mighty River Power hydro station; one of 9 on the Waikato River

By Amanda Morrall

With more than  NZ$100 billion combined sitting in the bank, householders may be well positioned to take advantage of the upcoming SOE sell-off, but just how wide they'll open their wallets remains to be seen.

Mighty River Power and Genesis Energy are expected to be auctioned off in late 2012, giving would-be investors plenty of opportunity to survey the landscape and do their homework. (Craigs Investment Partner Mark Lister explains more on the mixed ownership model here).

Investment consultant Brent Wheeler said those looking to do better than cash in the bank or speculate on property would do well to raise a hand.

"I think there is a demand for those sort of stocks and most people will do well to add them to their portfolio either via the institutional route, or holding them directly...I think it's positive because it offers some additional diversification and it may add some liquidity to a pretty thin market.''

Join us tomorrow at 1 p.m. for another live web interactive with fund manager Brian Gaynor who will discuss the SOE sell-off and what it means for investors.

With few exceptions, Wheeler suggests most investors will be better off buying into the SOEs through an investment house or fund manager for the professional guidance and also reduced fees.

"Because institutions can negotiate lower transactions costs, they have economies of scale in managing the investments and they’re able to combine them into diversified portfolios so the risk is spread and they have armies of analysts which mum and pop aren’t. So they can do things like buy a correct weighting. Mum and Pop trying to choose between Meridian ,Genesis, Mighty River Power or Solid Energy are going to struggle compared to someone who does this for a living.''

Despite criticism of ticket-clipping fund managers, Wheeler said do-it-yourself investors could inadvertently cause themselves a lot of harm because the perception of buying stock is no more difficult than grocery shopping.

"I think we tend to overlook that (the use of fund managers) because we have some romantic vision of some guy popping down to his local branch of Craigs or what have you and sticking NZ$10 down and buying energy shares.''

Authorised financial adviser Chris Wasley recommends would-be investors have a clear understanding of what they're investing in.

"Just because it is an SOE it doesn’t mean that it is not without risks, said Wasley, with Myles Wealth Management.

In addition to the specific risks associated with a particular SOE, he said there were other market risks investors needed to be aware of.

"It will be important to carry out a SWOT analysis of the SOE to see what its strengths, weaknesses, opportunities and threats are – both before and after the share sale."

'Handbags will be flying'

Fund manager and financial columnist Janine Starks said competition among brokerage firms, fund managers and KiwiSaver providers was likely to be stiff.

"The brokerage houses are going to line up like Merivale Ladies at a Ballantynes sale – handbags will be flying as they jostle for an allocation.   It will be well oversubscribed as institutions and Kiwi saver managers will want a slice of it, or be forced to take a slice as they will have to hold certain percentages of the main companies in New Zealand.  Utilities are also a classic defensive holding in a recession with regular dividends, so the timing is perfect," said Starks.

"Make way for the bun-fight,'' said Starks, noting that her own firm Liontamer would not be among the throngs.

The sale process, expected to raise between NZ$5-7 billion, is slated to take place over three to five years. Under the sell off, Government will retain majority ownership of the enterprises. (See Alex Tarrant story here for details).

Finance Minister Bill English said previously the partial privitalisation of the SOEs as well as creating good opportunities for investors would help to build the economy.

“Particularly [for] our households, who are increasing their savings rates and will be looking for better investment opportunities than our finance companies, which collapsed over the last 4-5 years," he said.

'Not growth stocks'

While investing in power stocks (a disadvantage of which is they would remain subject to the whims of government) may not be a sexy addition to one's portfolio, it could prove a sound one given current economic conditions, said Wheeler.

"You don't buy them as growth stocks. They're regulated utilities and will remain so. Generally people buy them as defensive stocks, because they are dividend yielding.

"If you think of an average profiled investor in NZ at the moment it might be someone who has a lot of money in the bank because they don’t know what else to do with it at the moment, they’re probably getting 2-3% before tax and they’re wanting to put their money somewhere. They just had an enormous fright with housing so leveraged purchase of real estate is not something they necessarily want to do. They’re probably still overexposed."

"Well here is an opportunity to do something that is relatively low risk and still better than the  bond market, which looks to be sick for sometime."

Questions to ask

As a starting point, Wheelers suggest investors ask themselves the following:

a) How does my portfolio look? Should I be allocating some assets to this.

b) If so what’s the best way to do that?

"Do stuff you can do. Don’t try to turn yourself into Warren Buffet because you’ll fail and that’s a waste of time. What you can do is look after your own transactions costs, I”d be wary of doing anything short-term and you should be concentrating on what your own portfolio because that’s something you can do something with."

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

61 Comments

Punters must think long and hard before grabbing this stuff.....National will not be govt for ever...the socialists will return probably dressed in green....and then the value of your shares would be toast. As it is, under this govt you should expect the dividend to be ground down to about the 3% after tax level. Now when you take into account the currency debasement and the prospect for the real owners to flog more shares in a grab for more cash....well it don't look too good.

I expect the 'spin and blather band' to bash out a happy tune leading up to the first sale....the best offer since sliced bread humbug...to take the suckers for the highest price possible...then as the process grinds on the demand will ebb away as the truth leaks out of the dam sales....and as the airline reports massive capex demands curtailing dividends....

Ask yourself why you must...YOU ABSOLUTELY MUST buy them on day one...for the highest price.....fools and their capital are soon parted by sneaky thieving govts.

Remember, the majority owner holding all the power....is your trusty govt.....harrrhahaaaaaa

 

ps. flogging more shares would not drop the govt control of 51% of the common stock.

 

 

I reckon that anything which averts investors' gaze from residential properties & finance companies , has to be good .

.. and  if the new PM circa 2014 David Cunliffe plans to re-nationalise those SOE's , no doubt he'll follow in the footsteps of M.Cullen , and pay an over the top price for those premium assets ......

KiwiRail ! ...... a " premium asset " , .. what a berk !!!! ..... aha de ha ha ha .

Gummy, your crystal ball is pretty good but Cunliffe?!

Nothing wrong with Gummy's ball Amanda!....it's his eyesight what's failing him...

So there’ll be tears, tanties, and tiaras' tossed. Sounds like one of those bars in the Philippines Gummy goes to. 

I am torn between two Davids , Amanda ...... obviously Cunny is not my greatest fan , but the guy would rejuvenate the Labour party with what little remains of it's younger talent . Having said that , Jacinda Ardern was the obvious choice of a running mate for him ...... but clever Cunny is looking to appeal to the female voters & the Maori in one hit ..... sorry Jacinda , get back to the sun-bed tanning clinics , hon ...

... Shearer is a fresh face , and a capable guy ..... but ( and this but is bigger than Paula Benefit's but ) .... he is backed by the old hands in the Labour party , the baggage of the Clark/ Cullen years .

Sadly for us all , Labour screwed up their party list by placing the old lags at the top , and relegating the newbies to the rear ....... and alike Darren Hughes , their careers ended when they  fell off the bottom ...

I hope its Shearer as Cunny is too much of a Cullen for me.  Its ironic that Cunny will make the rich even richer by buying back SOE shares, i bet for more than what it was sold for, ala Kiwirail.

This is not some clever plan to convince Kiwis to stop throwing money away on unproductive things such as property. Selling off our productive state assets, be it to foreign owners or ostensibly to those who already own them - us - should be regarded as the economic crime that it actually is.

By making the country financially weaker as a result (and you're deluding yourself if you think it won't do that), even more "ordinary" people, the "mum and dad" types, will run into the welcoming arms of property investment.

The motivations and outcomes of the sale of state assets are well known: the personal enrichment of those who sell them and the cronies to whom they are gifted, while everybody else takes it up the ****.

 

All that a future Government needs to do is use its 51% to hold electricity prices down and the "investors" will come crying to get their cash back.

As for AirNZ, it is a risky buy in any time frame.

Air NZ crashed landed 3 months after the IPO of $2.8, landed at 89c.  12 years later it is trading at 91c.  (has gone up and down during that time of course)

Why don't we create a degree in bulls....The more you tell the better grading you gain.

OH SORRY realestate agents and financial advisors hold all the degrees already and you might say that some are over qaulified.

GFC II is here,,slowly morphing into GFC III.

Beware before giving your hard earned money away...to the Government or any one else..

If you are not socially responsible, you'd better off to buy shares in Uranium mining company across the ditch now that auntie Gillard has lifted the sanction on India. 

Remember $10,000 invested in iron mining (Fortescue) in 2002, now worth $22 mils.  Uranium will go the same way.. very rare resource.

Sounds like a plan, long Uranium stocks, short Glass stocks. 

Yeah rush out and buy some!

With all this talk from the finance sector spivs about the offer being over suscribed,  "Make way for the bun-fight,'' etc. Just how will the government arrive at a price for the IPO. Is it done by tender?

Just asking.

It's done by GoldmanSachs

The squid must have long tentacle to reach all the way to NZ.

 

.... they are already here , bleep ,...  the squid has been amongst us for many years ..... you see them , but you do not recognize them , bleep ....... but they know you , my friend , yes they're onto you , bleep ....... be afraid my friend , be very afraid , their tentacles will slither and slide , bleep ......... they will reach for you when you're most vulnerable  .....  the squid will come for you in your ....

... bleep !

the wilberforce?

handbags or rubber bullets? Gone are the days when kiwis were willing to bleed a little for something they truly believed in. Consumerism and personal debt has taking our souls 

Who cares, as long as the government retain the 'golden share'?  Lets raise some money from these assets - all this bull about selling 'our assets' is a smokescreen.  The government will still retain 51%.

NZers are paranoid that the rest of the world are trying to steal what is ours.  Get in the 21st century and accept a global market people.

You should raise some quick cashat a flea market by selling everything you own. Think of the money you'll have for a while! How can you lose?

The trouble is that paranoia is not a good thing.  The gains from the sale go into Treasury coffers.  We need to look at reducing money wasted on unproductive social welfare.  That is why the government have looked at how they can raise funds.  We moan about not being taken seriously as we are a small country, but unfortunately it's not the size of the country, but the size of the mentality that makes us so small.

 "We need to look at reducing money wasted on unproductive social welfare"

So, in your household when you've identified wasteful spending do you a) cut the spending, or b) reduce your income by selling all or part of your income producing assets and continue with the wasteful spending?

We do both.  We cut spending and then look to see what assets we have that we can sell and don't make a difference to the day to day running of the household.  Only a fool would look at one way to increase liquidity.  I mean, if we stop buying just Toffeepops it isn't going to make THAT much difference.  However, if we stop buying Toffeepops and then sell some clothes that we don't often wear on Trade Me say, then we are making a difference.  if we had a spare car that we could rent out to someone visiting us from Aussie, but still kept our name on the rego document, all the better!

Mind you, I think we would then go back to buying the Toffeepops.

or c) sell income producing assets paid for by you, your siblings, your mates, your parents, your grandparents, continue the wasteful spending, buy the asset back at a higher purchase price and expect your siblings, mates, parents, grandparents etc to also buy the asset back if they want to gain any benefit from selling it in the first place? 

"We need to look at reducing money wasted on unproductive social welfare.  That is why the government have looked at how they can raise funds." 

Say what?

The Government are not reducing their waste in any meaningful way or they wouldn't be having to look at how they can raise extra funds. Selling our assets to "pay the grocery bill" is the height of stupidity.

What assets are they selling????   If you own 51% of the shares, you have full autonomy over the asset.  Therefore by a process of elimination they are NOT selling the asset.

That has nothing to do with the point I was making. Whether the Gov sell 100% or 20%, they are disposing of assets to pay for expenditure they shouldn't be making in the first place. Waste in other words.

That's good.  What waste would you cut back on?

Who is dumb enough to think they will stop at 51%?

And who is dumb enough to think selling profitable assets is not retarded?

OK LOL, Where's your proof of anywhere where the government have sold their 'golden share' - nowhere me thinks - more like more negativity.

If only you read what other people wrote, instead of dogmatically focussing only on your own ideas. The point raised was that only the most naive of fools could believe that "partial asset sales" won't eventually become "asset sales".

"We need to look at reducing money wasted on unproductive social welfare."

Do you mean by cancelling the pension, since that is where most of the SW budget goes? A bit harsh, methinks, and would drive even more oldies into the camp of Winston Peters.

One in ten of Kiwis on some benefit - how did everybody survive before all these benefits?  A successful welfare system helps those who are unable to help themselves, not pay for a way of life that doesn't offer any incentives.  The problem is that we expect certain things now as a given right, not something we have to work for.  People live longer than when the state pension was introduced - nearly all countries with a state pension are trying to raise the age at which we get it.  We aren't.  We are getting too used to state handouts and when the truly needy ask for something, there is nothing left.

A typical rant-by-numbers there, and you avoided answering my question. Most welfare beneficiaries in NZ are pensioners. Do you advocate cutting pensions, since pensions make up by far the most of NZ's SW costs?

Read my post below - I avoid/ed nothing. 

On saying that, I don't see State Superannuants as beneficeries - according to the experts it is a Pension and not a Benefit.

I do believe in raising the age for Super to 67 or maybe if it takes 25 years to 70.  I don't believe there is any argument to seriously not support doing this.

Both those ages and time limits would affect me and my family, but paying it at 65 is ridiculous in this day and age.

Also the majority of people who receive Super will have paid into it over the years.  The point I was raising was that there are people who receive benefits and have NEVER made a contribution and their offspring are born into the same system.

Weasel words. A pension is a benefit. And pensions account for most of the SW budget. You cannot complain about "beneficiaries" without complaining about pensioners, because they are one and the same thing.

Wrong again there - the Super is NOT a benefit - Benefits in NZ are means tested - NZ Super is not means tested

You're gonna have to do better than that. The pension is a welfare benefit that just happens to not be means tested.

Here's a question for you: Is a highly skilled and experienced 60-year-old who, after decades of hard work, dedication and loyalty, is now on an unemployment benefit because his 30-something manager laid him off and now cannot find work due to his age, worth less than a 65 year old who has recently retired from a cushy make work career and now collecting a pension after decades of doing SFA?

By your logic the latter is a worthy and deserving member of society, entitled to his handout, while the former is a no-good bludger milking the system dry.

So, when Welfare is mentioned all everybody thinks of is the State Super?  I would like to point out there are plenty more Welfare benefits out there.

I have added a link in case any of you aren't too sure

http://www.workandincome.govt.nz/online-services/eligibility/index.html

Pensions account for by far the largest chunk of NZ's welfare costs, so it's natural for people to think and talk about pensions when the subject is SW costs.

So what CC...the point some run away from as fast as they can is the fact that SW can be sorted into what is required to ensure a safety net exists and is managed prudently...and the SW that amounts to political pork sliced and diced and exchanged for votes by lying scumbag pollies who want to park their fat ...... in a comfy overpaid seat for three or more years.

Pensioners almost always vote, while the worst kinds of benefit abusers very rarely do.

That's a bloody good point mate!!

Winston Peters would concur !

Ha Ha yes!! Old Winston knows a good crowd when he sees one!! It is hard to see the logic or merit in arguing that increasing the number of non pensioners on a benefit is buying votes when like Chris just said the true bludgers never bloody vote!!

I totally agree Wolly.  The trouble is, once a 'new benefit' is introduced, it is really difficult to do away it.  In theory, starting all over again is the best idea, but what do we do for those who genuinely need while our bureaucrats sort out years of mismanagement and mess?

Again, given that the bulk of SW costs are incurred by pensions, do you advocate reducing them?

Mate I think the point that is being made is that when people talk about beneficiaries they always mean ' dole bludgers ' or ' solo mums ' but they ignore that as has been said most of our beneficiaries are OAPs like me.

Certainly there are a few layabouts on the dole and other benefits who should be facing the big stick but then there are plenty of people who are there because of tough financial times and would much rather be working for a living thanks very much.

But it is still a fact that when you say ' ' social welfare cost ' ' you have to accept that mostly means ' ' pensioners ' '.

Precisely.

I don't agree - read my post above.  'Pensioners' are totally different.

They are exactly the same thing. Pensioners, as with all other SW beneficiaries, receive their payments from the SW budget.

Read above - Most pensioners have contributed to the Welfare System.  This is hard work getting through!

Pensioners are still beneficiaries!! You make the usual disingenuous ' ' error ' ' of suggesting that most SW beneficiaries are benefit abusers, when that just really isn't the case. No one doubts that there are people on a benefit who probably shouldn't be or at least they should not be receiving every thing that they do, but the (very sad!! ) fact remains that most beneficiaries are only such because they have bloody few other options, and that includes pensioners!!

Remember - we pensioners are beneficiaries too, and that's the bulk of social welfare costs.

The pension is NOT means tested, hence not a benefit.

Uhuh. If the pension is paid to retired people out of WINZ's coffers then it's a benefit.

The very fact that NZS is not means tested makes irrelevant the fact that pensioners have contributed to the welfare system, for the amount of NZS you individually receive is completely unrelated to the amount that you individually contributed in taxes during your working life.

What is relevant is that the amount of NZS that pensioners over the next few decades will receive from their children, collectively, is far greater than the amount that they paid for their parents' NZS, collectively

That is because there will be a higher proportion of pensioners in the whole population than there has ever been before.  So, fewer working age people to support each pensioner.  This is not the fault of the baby boomers' children, but they are the ones who are expected to bear the costs.

 

 

LOL!!!

Pfft! Yeah, sure, "pensioners are different"... but only because one day you hope to be one, and you'd hate to have to call yourself a bene bludger, right?

For years "But this is different!" has been the rallying cry and feeble excuse of economy busting parasites the world over.

LOL

 

I'm sure there's savings to be made across the whole of government spending. Get central Government to no more than a third of the economy.

I was up for Jury service the other day. Sixty or seventy people called in, lawyers and their helpers running round. Two days wasted and they never even got round to selecting a jury. A complete debacle and no one seemed to give a toss - all paid for by Ewen Me of course.

There are some non productive assets that should be sold as well. The country is littered with abandoned, deteriorating schools for example. 

Days to the General Election: 22
See Party Policies here. Party Lists here.