Will anyone make a killing on Mighty River?

19:56, Mar 19 2013

A mate - who has never owned a share in his life - tells me he plans to "make a killing" out of the Mighty River float.

"Won't you, too?" he asked.

He looked bewildered when told I thought it unlikely.

For starters I don't know how much a "killing" is. Is it $500, $1000 or more?

Many friends are always short of money. If they sold their Mighty River shares for a $500 profit they'd feel they'd made a killing, go to the pub, and murder a lot of beers.

Yet wealthier mates would think nothing of a $1000 profit.


This would include those who say secured 5000 Sky TV shares last Monday when Rupert Murdoch interests surprised the market by selling its long-standing controlling 43.6 per cent stake. They would have made $3000 by Thursday. The shares were sold at $4.80, but rocketed to $5.28 three days later: when they also received Sky TV's 12 cent dividend. They made 60 cents a share in three days.

I'd be surprised if too many of these folk are losing much sleep about Mighty River. As individuals they'll be strictly limited as to how many shares they can buy.

While they might, say, apply for $10,000 worth, given the intense public interest this could be severely scaled back. Aware of this possibility, the Government has pledged all applicants will get $2000 worth. The chances of severe scaling would intensify if all the 200,000 who have pre-registered apply for shares.

Pre-registering only indicates people are interested in buying. Many will probably opt not to go ahead when they receive the details of the offer.

Some may name a broker when they register. However it is pointless trying to get shares through different brokers. This is unlike some recent floats, like Trade Me, where good clients got small numbers of shares from each firm they dealt with.

You can't double or triple dip in Mighty River. For fairness, everyone has to supply their individual IRD number and everyone will get the same number of shares. However, fund managers, including KiwiSaver funds, may want more. They could buy more when it is listed, helping the share price.

Tricky investors in the past had great fun trying to beat the system, for instance, by applying for lots more shares in the names of the family car, Austin Healey or Morris Oxford, or pets Whiskers Jones or Fido Smith. This won't work this time: I've never met a pet with its own IRD number.

Couples can apply for shares in their own names, and also for the family trust if it has an IRD number.

Mighty River is unlikely to be the bargain of the century. It is anticipated the Government will sell its 51 per cent stake at an attractive price. But how attractive? It would be politically stupid - given the large slice of the population opposed to the sales - if they were priced absurdly cheaply at say $3 each, and immediately jumped to $6 on the market. No government wants that political backlash.

Till the details are released later this month, it might be assumed that these shares will sell at a modest discount compared to other energy stocks on the NZX. The likely yield - probably up to seven per cent - will be better than the bank. (Contact is currently yielding about 6.2 per cent).

Thus it seems improbable, given the relatively modest number most investors will get, that they'll make overnight fortunes. It won't be Lotto. Hopefully many will hold on for the loyalty bonus, giving badly needed extra depth to the local stock exchange, the Government's purpose in selling these shares. The issue will attract strong interest from KiwiSaver funds and larger investors who'll want sizeable parcels.

In all the huff and puff, people are failing to put the issue in perspective. At somewhere between $1b and $1.5b it is not that big. In comparison all the shares in Murdoch's $813m sale of Sky TV were sold in a few hours.

In spite of claims by Green and Labour MPs - are they really that ignorant of how business and financial markets work? - it seems improbable that Australians will want to dominate Mighty River. They have their own energy companies.

There is little point of a major Aussie electricity company, like Origin Energy, buying a stake intending to take it over. The Government's 51 per cent blocking stake would stop that.

Mighty River is an attractive company, but it has similar problems to its rivals in being in a highly regulated industry which hampers share prices.

Energy companies in Auckland last week argued heavy-handed regulation was constraining overseas investment. Low water levels in the Waikato might limit earnings.

Lurking in the background remain Maori claims for the nation's water. Despite the Government getting the go-ahead for the sale from the Supreme Court, lawyer Mai Chen says that there are many fish hooks in this decision, and risks remain for the company's free use of water - and anyone buying shares assuming this will continue.