Take Five for Wednesday

Personal Finance

An investor's guide to the SOE share offers

27th Jun 12, 12:11pm by Amanda Morrall

By Amanda Morrall

There will undoubtedly be a few hiccups and hurdles for the Government to overcome before the initial public offering of Mighty River Power finally gets underway in spring or early summer, despite the law allowing the sale to go ahead being passed yesterday. For potential investors, the lead up time provides a good opportunity to explore the offering and determine whether getting a piece of SOE pie makes good financial sense.

In place of my usual Take Five, here's a five point plan to help.

1) Register your interest

This is step one for anyone interested in acquiring some Mighty River Power shares while the Government irons out the details. The process of registering won't compel you to go ahead with buying shares, it will simply get you a place in the queue. In the case of the Trade Me IPO, many investors were left on the sidelines because they waited too late. You can register your interest through a broker or through other as yet to be announced venues and parties. To be kept abreast of that and any other information related to the offer, sign up for newsletters and bulletins on the Government's official share offer website. You'll need an IRD number and a dollar figure amount of how many shares you'll want to buy.

2) Get informed

Use this time now to understand whether it makes sense for you personally, within the context of a wider financial plan, to get in on the offer. The official share offer website offers some basic information explaining the process and is a great place to start your research. Many share brokers are issuing reports on the SOE sale offer as well, so you can use them as another source of information. See also interest.co.nz's interview with fund manager Bryan Gaynor which gives an overview.

3) Get advice

Once you understand the issues, how the process works, and what risks are involved, it would pay to get some financial advice to help flesh out the details in terms of whether it meets your financial objectives. As investors will be able to get involved in the share offer process through multiple channels, make sure you are getting quality advice from an expert.

Under the Financial Advisors Act, only Authorised Financial Advisors are able to give you personalised advice. Registered Advisors, for example a bank teller, can only offer "class advice" which is general information relevant to a particular product. As tempting as it might be to rush in, first time investors will likely benefit from overarching financial advice offered through an authorised financial advisor. The initial meeting with an AFA is free and will not compel you to use their services either. For more on who is authorised to give what advice under the new regulatory regime in New Zealand, check out the Financial Markets Authority website here.

For more information on how to find an AFA, and what to look for in that individual, you can visit the Institute of Financial Advisors website.

4) Grow your knowledge

If you're bound and determined to go the DIY route because you're scared of incurring extra costs through using a financial advisor long-term, then make sure you're well equipped to go it alone. In his regard, Craigs Investment Partners is relaunching its women's wealth seminar (free to the public) next month. I doubt they'll turn away the blokes but this one is geared mainly to women who are interested in stepping out beyond managing the household finances to learn more about investment. This is a great way to up your game and also get connected with like minded folks who want to discuss money at a more sophisticated level.

5) Check in with your KiwiSaver

It could be that you'll be getting in on the share offer through your KiwiSaver provider. It will depend on the fund manager and also what fund you are invested in. If you are one of the 250,000 invested in default funds, you could be disappointed. I am continually surprised by the number of people who don't know who their provider is, let alone what kind of fund they are invested in. If you don't know, get registered on the IRD website as your provider will be listed there, along with a break down of your contributions.

If you do know who your provider is, talk to them about their investment philosophy on this one and what you can or can't expect in the way of the SOE sales. It's early days yet so you might not get much out of them but the call won't be wasted if you find out what fund you're in and what it's invested in. You can also get most of that information from our website through our Find your Fund feature.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall

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24 Comments

by Miss Astrid | 27th Jun 12, 1:18pm 1340759904

Thanks for the link to Treasury's share offer website. Part of me is skeptical that this would get me a prospectus/application form. I suspect brokers/AFAs etc will get preference.

I bought my first sewing machine with the proceeds from when Mainfreight listed.

by archaeo | 27th Jun 12, 1:19pm 1340759947

Any idea what the maximum share parcel size will be for retail investors?

by Amanda Morrall | 27th Jun 12, 1:37pm 1340761038

Gov't website answers most of the basics and will be updated going forward on specifics.

This is what is states for now: "The price and number of shares being sold will be different for each of the five Government Share Offers. Those details will be determined closer to the time of each offer and will be set out in the relevant Offer Documents."

Our in house AFA suggests if you are especially keen to go for more than less...although be prepard to accept the dollar figure you put down.

You can boost your numbers by registering family members (even under 18s) but they need an IRD #. So get your ducks in a row.

by cam | 27th Jun 12, 4:19pm 1340770794

Hmmmm I don't think its so much the actual price they are issued at. More the underlying value each share and the proportion of the company it represents.

They could easily make them 10c and issue billions of shares (or 1c for that matter).....so in that case you would buy as many as you could ?? ....likewise make them $100 each and issue far fewer in which case you wouldn't buy any??...but could in fact own a bigger slice of the company.

Not sure if I have explained that quite right....

by Craig Simpson | 27th Jun 12, 4:40pm 1340772058

Agree with the comment re price. The number of shares you hold is basically irrelevant. It is the intrinsic value of the company and the underlying fundamentals that matter and should drive the decision to buy or not.

As an aside for the SOE's being flogged off have a look to see if the companies have bonds listed and weigh these up too - it may be better to own the bond than the shares depending on your risk profile and investment objectives. Your adviser can help you with this.

by Gummy Bear Hero | 27th Jun 12, 5:32pm 1340775135

Allied Farmers ( NZX : ALF ) has 90 million shares on issue ...... but they're only 2.7 cents each ....... so you can buy lots and lots , alotta bang-for-your-buck ...... screeds , to wallpaper the whole house , the out-house , the kids' play hut .... dammit , 90 million shares would re-paper the entire Red Zone of Christchurch ......

...... over in the USA just 16 shares in Warren Buffet's company Berkshire Hathaway equates to the entire market capitalisation of NZ's Allied Farmers ! ..... those BH " A " shares sell for $US 122 000 each ......

90 million Alf's vs 16 Berk's ..... it's easy to see where the better value lies ..... where's me wallpapering brush & the glue , ma ?

by archaeo | 27th Jun 12, 4:56pm 1340773001

Then can anybody remember the max parcel size when contact energy was floated back in the 90s?

by powerdownkiwi | 27th Jun 12, 1:59pm 1340762370

then you can read this:

http://www.energybulletin.net/stories/2012-06-26/take-home-messages-aspo-2012-conference-europe

particularly the part headed "Financial - Monetary system'.

Then ask yourself the primary questions - what is money? abd wnat will it be in the future? If linked to real wealth/worth, we're looking at zero interest rates, or lower, so maybe your 'investment' is going to be worth more than alternative storage options.

There again, the 'return' expects that there will be customers capable of generating (sorry, couldn't resist) an income themselves, to pay the bill.

My pick is that the growth-based fiscal system crashes, and that ownership will be nationalised by national consent. Barring resource war(s), societal collapse, etc, of course.....

In a world where we are fracking, deep-sea drilling, shale-extracting and -so help us - lignite scraping, it amazes me how many are still reading the previous chapter.

by archaeo | 27th Jun 12, 5:08pm 1340773708

Cheers for link... i think their wrong even though

I think they are gonna print their way out and the world will floundry in a decade of stagflation with some nasty inflation in the later stages. Vested interests have to much to loose to let it collapse. Every one hates of Fiat currencies but the are flexable. As long as they dont get crazy on it (ie Germany 1920s) then they are just gonna continue to devalue the major currencies until the huge debt has been eroded.

Obviously oil still using the US dollar aint the best but if they stopped down goes the USD and every countries USD foreign reserves, thats why that wont be happening either.

by steven | 28th Jun 12, 7:27am 1340825252

I think the best you can hope for is the stagflation and inflation scenario...Some things that make me think this is too optimistic are,

1) For inflation money has to get out into main street, it isnt there and I suspect never will be in the quanity needed. This is because of 2),

2) Vested interests are to be honest too busy looking after number one, and indeed some ppl will be shorting the coming depression and might even be actively working for it to ensure their "profit" So by shorting you move into cash or cash like things ready to rush out and buy at firesale prices....hence I suspect why the US treasury can sell bonds so cheap.....There are cash hoards but Im not sure the banks will keep their doors open.

3) You are right in that some Govns will do their "utmost" to avoid a Depression (or rather appear to). However one of the biggest, the USA is frankly controlled by nutters IMHO and they want a Republican "future" and because their ideals are not founded on anything approaching sound economics its going to drive the USA and then the world down. "utmost" is I think more like minimal....its been that way for 4 years and these days minimal spending is looking awfully large compared to private investors exiting and the voters will say nein....

4) Within 5 years we will be on the post peak oil descent, we wont be able to afford to get new oil as marginal fields will be $90 a barrel and out economies wont be able to sustain that cost....both in terms of $90+ and the EROEI means we will have to rob peter to pay paul.....I dont think the sums add up.

5) Fiat currencies, lots of argument on these. Claims that they sent empires and countries bankrupt. Rather than a cause think on it a different way, their abuse by Govns may actually be a symptom....The German Weihmar for instance was bled dry by the French taking out all the resources and profits so the Germans were dumped in a straightjacket with no other outs.......peak oil could and I suspect will have the same effect....Hence why its possible later on we will see [severe] inflation, after the depression govns will be printing but the energy supply you can buy will be limited....however there are so many variables and unknowns that Im nto sure anyone can see how it will be in say 2020, except its going to be bad I think.

regards

by Wolly | 27th Jun 12, 3:57pm 1340769479

Pump and dump is the order of business. Ask one thing of your brain...why would the govt sell the shares for less than they can get and how many times have you seen share values dive post the open.

Are you being silly waiting to see what happens in 014...will Winston be top dog in a socialist flop govt that makes share holders an offer they have to accept, after having driven down the share value by dropping power prices to buy a second term in 017.

Look at what Labour did to the share value of aia......doh.

by archaeo | 27th Jun 12, 5:22pm 1340774547

Winstons only saying hes gonna nationalize the energy companies because there is no way labour or the greens will ever go for it as niether would want to be associated with a 3rd world policy like that. They both, especially greens in their first time at the reigns, dont want to look like a rummy bannana govt. So Winstain looks like the big man but never will need to back it up. Same old story. Probably wont be a govt change, these shares are gonna be priced so cheap that its gonna be like a tax cut by stealth. Everybody that has a drink will want another so there goes johnboys 3rd term.

Pump and dump... yeah that will work but then what do you do with your cash? Let it erode waiting for the fabelled deflation that never comes?

by goldenfox | 27th Jun 12, 6:21pm 1340778070

Disagree; this offer will be sold at a substantial discount. Gov't wants to sell the rest of the family silver so needs to keep Ma & Pa happy and have them all taking about the great paper gain they made. So they take up the other gems. Expect a Dividend Yield greater than Contacts which is approx 7%.

This also keeps the National Party faithful happy after all it will be NZ's better 10-25% whom can afford to take up these shares (Don't think may prospectus' will be heading to Mangere compared to DonKey's Parnell)

Gov't will sell shares for less than what a private person would get. In fact its been very good at under pricing assets. i.e. Government Print to Graeme Hart at an eye watering 1.5x Earnings with vendor funded. They add to this successful track record with the recent sale of good, non defaulting South Canterbury Finance debt with a book value of $900m to G.E. Finance and Nomura for $120m.

Things to watch in the Prospectus’ will be planned Capital Expenditure and how it will be funded, also look at Dividend Coverage ratios (it might be juicy now, but is it sustainable)

Expect an opening week again of 10-15% and get out in the opening week/month!!

FYI - Totally Against the Sell Down. The Gov't needs to fix its Spending/Revenue not sell Capital Items. Global asset markets are depressed, you don’t sell when there is still blood on the streets and the public are hoarding cash. This is all about DonKey looking after his mates.

by archaeo | 27th Jun 12, 6:30pm 1340778606

Goldfox your on the money,

by Grant A | 27th Jun 12, 5:58pm 1340776720

Archaeo - you've got your own way of describing it, but I thoroughly agree with both of your posts. And in a stagflation world I want the dividends and won't worry about the share price, particularly as they will be a long-term hold until, somehow, I magically figure out when the inevitable deflation will hit, but I suspect thats some years away yet.

by archaeo | 27th Jun 12, 6:19pm 1340777965

Question: if you agree they are expanding to money supply and we are looking at stagflation where will the deflation come in? I think there was deflation in real terms in the early years after the GFC (ie house and land prices froze until the current rush in chc and auckland and electronics are being given away) the low interest rates here and QE overseas stopped it from happening in dollar terms.

by Grant A | 27th Jun 12, 7:11pm 1340781102

There undoubtedly was some deflation in some areas of most economies in the past 4 years, but I've seen the global numbers, and apart from about one quarter at the height of the GFC in 2008, the world remained in an inflation environment - even in that panic and credit collapse the world couldn't create any meaningful deflation because QE overcames it, and will continue to do so in a fiat world. The reason that I suspect we get deflation eventually is simply because at some point the money printing will blow the system up.

For QE to be successful, the injected liquidity has to be at least partially removed at some point and that will be a job like no other for a central bank - history suggest they either mismanage it too hard or too soft, eitherway a collapse at some point seems likely i.e. I don't know if they go too soft and have stagflation morph in hyperflation, then collapse as it always does eventually, or too hard and create a deflationary spiral earlier.

by archaeo | 27th Jun 12, 8:01pm 1340784112

I dont think the money system will blow up? As long as inflation doesnt go hyper then we will just have grin and bear wage and buying power reductions along with price rises. The system rolls on and we get punished for buying into it. For QE to be sucessfull it just needs to stave off the deflation-blow the system up senario, just cos they said they would take the money out doesnt mean they will, they just have to deal with an expanding money supply which New Zealand has been doing for the last 25 years.

Mismanage? Too interconnected today, too much agreement, cooperation and coordination for a 1930s Monkey at the Fed situation to happen.

The only possible situation for a "system blow up" would be a popular revolution and even though there has been a bit of that going on in the sand countries I think we are a bit to neutered in NZ for that, after all we elected Key and hes most probably a Merril Lynch/Global Elite plant. Anyone notice Merril Lynch are a JLM for the SOE floats? Surely thats questionable.

by Grant A | 27th Jun 12, 8:23pm 1340785412

Well I hope you're right archaeo, I'll just signal it as a real risk down the track. Merrill Lynch ? I'm not really into conspiracy theories, but from what I know of him, and from inside ML from his time there, I have little question about motives..... people can always ask questions but frankly I think its just fodder for the left to debate in their world.

by archaeo | 27th Jun 12, 9:19pm 1340788753

Deflation is the conspiracy theory. Whether hes being paid to do what hes doing by Merril Lynch or for free the results the same. Selling state assets on the cheap, demanding fonterra push TAF and become semi-listed or face regulation, these policies result in weaker govt books and a weaker country. Thereby less we are less likely to resist future attacks by external forces. Economics is just an unconventional form of war.

by Grant A | 27th Jun 12, 9:57pm 1340791039

I guess that one theory that we don't agree on archaeo - feel free to call me naive.

by archaeo | 27th Jun 12, 10:44pm 1340793848

No Problem, It doesnt worry me whether you support that theory. what is is. The stagflation and the SOEs being a good investment + asset class to be in are the theories im looking for support on at the moment.

by Jethro | 27th Jun 12, 11:36pm 1340796974

SOE cash - from where to where?

It will be interesting to see what happens when the Ma and Pa dosh (6 billion?) leaves its current homes (TD's, call, shares, under the bed) and where it ends up and also what happens when 'all' those foreign investors have to buy Kiwi $ to buy into the offers. Maybe some banks where it won't end up will be pushing their very short term deposit rates to make sure they get a chair when the music stops.

by Insulinoma | 28th Jun 12, 7:30am 1340825441

Who was that man who interviewed Amanda and talked about "Mum and Dad investors"? This expression makes me annoyed as I don't believe Mr and Mrs Ordinary go in for investment. They have mouths to feed and if they are thrifty and lucky they have a mortgage to pay.

Please get someone to do some research on the facts and figures of who investors really are. Then we can ask John Key and this interviewer to talk about the real investors!