By Amanda Morrall
In the past few weeks, the debate over the SOE floats has been hot and heavy, and not just in the hallowed halls of the Beehive where politicians have been duking it out.
During a recent interview on national television (see above), I had an intense grilling 20 seconds before I went on camera by the host who was rabidly opposed to the sale. I tried to explain that a) I wasn't a politician so don't shoot the messenger b) I am a financial journalist but not a broker, fund manager or clairvoyant and c) that given it was a fait accompli the ideological debate boat had sailed so let's move on. The question now is whether it makes sense for individual investors.
In my wide ranging conversations, with a network of friends I have discovered some curiously incongruous positions in this country. The consensus, from those I know and who shall remain nameless, is that while the move is questionable (at best) from an economic perspective, it's a no brainer for investors. Now as I pointed out last week in a previous edition of my column, the decision is ultimately a personal one that needs to be squared with a whole range of financial considerations.
For that, it would be wise to seek financial advice from someone qualified to give it.
My personal view is that on the surface, this actually seems to be a reasonable investment opportunity.
1) Although the pricing has yet to be announced, it is likely to be attractive. Why? Because of the time, energy and resources poured into this political hot potato, Government needs these IPOs to be successful so they'll want to get it right with Mighty River Power. To do that, John Key will have to do better than the usual rhetoric. Government will need to offer the appropriate inducements to the investing retail public, folks who wouldn't ordinary invest in the share market but whom make up the thousands with $108 billion in stuck in lukewarm term deposits.
2) Interest rates. In this low interest rate environment, which doesn't look to be going away anytime soon, investors are desperate for returns that will beat inflation after tax be above what they're getting at the bank. Given the profitability of power companies thus far, who have generated a return on investment to the government of over 16% per year on average for the last 10 years, investors would appear to be in store for something resembling a decent return.
3) Government control. Despite all the hang wringing about foreign investors having their fingers on the national thermostat, Government is not relinquishing its power over the power companies altogether. They will still be regulated by virtue of the 51% majority ownership it will retain thus offering some assurances of stability.
A light bulb moment
The most compelling reasons for me, as a would be investor, have to do with practicalities.
The first light bulb moment was on Saturday morning when I opened my latest power bill to discover that it had more than doubled. I knew the bill shock was coming but nothing quite prepares you for it; NZ$250 for a family of three, living in a house that despite discriminately used electric heaters remains cold.
The second came after I had unloaded a trailer full of firewood in my garage and just about knocked the neighbours' fence over while I was driving to reverse the trailer out of my long skinny driveway. As a first time trailer driver, I was unaware of the jackknifing effect caused by the reverse rules of wagoning. Regretfully, they didn't teach this practical skill in journalism school.
I fought back tears as I remembered the ease and warmth of central heating in Canada and I cursed myself for not having been more organised to stock up on firewood (to reduce the blow of the bill shock) before the waiting time for delivery (for now sodden mid-winter firewood) had turned into two weeks.
The experience, which I will put in the category of character building, reaffirmed for me that as long as the majority of housing stock remains cold, draughty and uninsulted in NZ (75% according to the Energy Efficiency and Conservation Authority (EECA)), the demand for power, particularly those who do not relish living like a pioneer, will be high.
You can either moan about it, move to Australia, or wait until global warming transforms of a nation of ice boxes until sauna baths. Alternatively you put some skin in the game and with the profits buy insulation and double your long-term return.