OPINION: Somewhere, high up in the Beehive, someone must have said: "Bugger!" After months of planning all the ducks were in a row - the timing should have been perfect for the Mighty River float.
Four things were needed. A resumption in confidence in the New Zealand Stock Exchange; the right climate to get people to invest; enough people looking for a secure place for their money to support it; and plenty of advance publicity ensuring a widespread feeling that Mighty River would be a "must have” investment.
On the last point: Did the opposition parties and the many protesters marching through streets and writing letters demanding that the Government abandon the partial privatisation programme realise that they were actually stoking demand for the shares? And that they weren't getting a cent for their promotional efforts?
Quietly and steadily small investors have been regaining confidence in the sharemarket for months. Happily it hasn't let anyone down.
People have been flocking back because of rapidly falling interest rates on fixed-income securities and at the bank. They are seeking higher dividend incomes that are still available on many shares. Some have been enjoying healthy capital gains. Some standout examples: Fisher & Paykel Appliances had a gross return of 45.9 per cent over the past 12 months; retailer Briscoes 70.8 per cent; Delegat's Wines 54.7 per cent and retirement village Ryman 51.7 per cent.
We've just come through a solid, disaster-free, six-month reporting season, which further bolstered confidence. There were no nasty shocks - against challenging conditions, most companies are doing OK. According to First NZ Capital, this allowed 75 per cent of the companies to increase their dividend payouts. Only four (or 15 per cent) reduced their dividends (Steel &Tube, New Zealand Refining, AMP Office and Vital Healthcare). A steadily rising dividend income gives a warm glow to the average investor. It is a key reason they buy shares rather than bonds.
Adding to confidence, the NZ Top 50 index was among the best performers in the world last month, gaining a further 3.4 per cent compared with a 2.1 per cent rise in the MSCI World indices. On a 12-month basis, the NZX All Stocks Index has had a healthy 13 per cent total return over the past 12 months. Smaller New Zealand stocks have done particularly well - the NZX Small Cap Index has risen 29.4 per cent over the past year, though the NZX Top 50 was constrained by poorer returns by stocks including Fletcher Building and Cavalier Carpets.
Many Kiwis are saving hard - though this won't be of much solace to those devastated by the finance company failures, including retired folk not in a position to do so. Mighty River would undoubtedly have attracted a lot of this money from investors who are getting comparatively low returns from the bank and finding it difficult to find investments from corporate bonds. KiwiSaver Funds would also have been keen to buy shares.
On top of that, $866 million is about to become available for reinvestment. This is from maturing corporate bonds from the Bank of New Zealand, Nuplex, TrustPower, Works Infrastructure, the ANZ Bank and Powerco. Underlining how increasingly difficult it is to find fixed-interest investments, of these only TrustPower and the ANZ are offering holders the opportunity to reinvest, though at lower rates. A lot of this cash was expected to go to Mighty River.
Prospects for a delay in the float had been growing steadily due to manoeuvres by Maori interests. These have been compounded by efforts by Rio, the owner of the Bluff smelter, Mighty River's biggest customer, to renegotiate aspects of its price in its supply contract. Related headaches concern future demand for electricity as production rises in the face of falling and static domestic and industrial demand, such as falling newsprint production from the former Tasman Pulp and Paper plant.
This suggests that the Government has missed the boat for the most advantageous time to get the best price for its 49 per cent stake. Opponents hope that even if it manages to sell Mighty River next year, the others will be postponed. These hopes may be premature. Some heavyweight Maori leaders are ready to negotiate, as is Rio. Having invested so much in this campaign the Government will not want to be seen to back down.
While obviously unpredictable, there could even be a more positive investment climate by next March. A sign of how quickly markets change was the buoyant reaction in global markets to the latest European efforts to resolve the eurozone crisis, which gave the NZX another upward nudge on Friday.
Since 2008 New Zealand has been comparatively lucky for share investors. Hopefully this will hold. To help fill the gap left by Mighty River, investors have the listing of Fonterra's $500m Trading Among Farmers Unit Trust late next month.
This timing could be ideal. Unlike Australia - which is facing a worrying slide in its fortunes thanks to its heavy dependence on mining - Fonterra's trust plays on this nation's strengths by giving non-farming investors a much needed exposure to an industry that should be especially well placed to prosper this century.
- © Fairfax NZ News