Loyalty share schemes have good record - Gaynor

By Ben Chapman-Smith

Loyalty bonus schemes overseas have been successful at encouraging investors to retain shares long-term, says Brian Gaynor. Photo / NZH
Loyalty bonus schemes overseas have been successful at encouraging investors to retain shares long-term, says Brian Gaynor. Photo / NZH

Loyalty bonus schemes for like that being offered to Mighty River Power investors are new here but are common and have proven successful overseas, says fund manager Brian Gaynor.

Prime Minister John Key yesterday announced more details about the partial sale of Mighty River Power and said a scheme to reward long-term investors would also apply in the other asset sales.

While exact details of the scheme have yet to be announced, the loyalty scheme would likely see investors rewarded with one bonus share for every 12 held after a three-year period, said Gaynor, who is executive director of Milford Asset Management and a NZ Herald financial columnist.

Gaynor said though such a bonus scheme would be a first for New Zealand, it was not a new model and had worked countless times in other countries.

"Nearly all of the UK government IPOs have had these bonus schemes," he said.

"If you go with what's happened offshore, this type of move announced yesterday will be a success."

Academic studies had shown if there was an incentive for investors to retain shares, they tended to do exactly that, Gaynor said.

Key said the loyalty scheme would only be offered to ordinary investors, not to institutional buyers such as KiwiSaver funds or superannuation funds.

Gaynor said the $1000 minimum buy-in was a "good figure" and was "about right".

"Admin wise, it's going to be a lot of work, but we have had that in the past. Contact Energy saw 225,000 investors."

There was a political ploy to setting the figure at $1000, as it would help Key attract more investors and thus justify the sale, Gaynor said.

He said the New Zealand Stock Exchange would be hoping the Mighty River Power float would attract about 200,000 new Kiwi investors.

Brent Sheather, managing director at Private Asset Management, said the $1000 limit was "a red herring" and was irrelevant.

"The vast majority of the stock is going to go to people who buy $20,000 upwards worth of stock and they'll get the stock because they're a client of a broker," he said.

"For every person who gets $2000 worth of stock there'll be a person who will get way more."

The end result of this would be that most shares ended up being allocated to rich people, he said.

Mighty River Power will be the first of four energy companies to be partly privatised - up to 49 per cent - the others being Genesis, Meridian, and Solid Energy.

Sheather disagreed with the partial-sales plan and said the government would be smarter to borrow.

"The government can borrow for 10 years at a rate of 3 per cent. They could retain the assets that way."

Unless court action by the Maori Council and iwi delays the sale, Mighty River is scheduled to go through the sale process between September and November.

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