By Philip MacAlister

Tower Corporation's 160,000 policyholders cannot expect a euphoric sharemarket listing like AMP's.

The Tower listing is quite different and will be far more subdued.

After AMP demutualised and listed on the Australian and New Zealand sharemarkets in June last year, its shares rocketed above their issue price before settling down to levels which were still above what many analysts considered "fair value."


In the giddy interim, nearly half the 274,000 shareholders sold their AMP shares.

Tower's long-awaited debut on the sharemarket is scheduled for September 28. This week the company issued its investment statement and prospectus.

The main factors against an AMP-type ballistic blast-off are three.

First up, Tower is relatively tiny compared to AMP (AMP itself is a minnow on the world stage). Its capitalisation will be about $800 million which will put it into the top half of the NZSE-40, but not the top 10.

Secondly, the market is much more sedentary than it was when AMP listed. One analyst recalls that when AMP listed the market was "going hyper" and investors were riding a high. Today's market is subdued and other major firms (like Edison Mission, Westpac and TranzRail) are seeking to raise capital.

Thirdly, and importantly, the Tower listing is quite a different beast to the demutualisations, such as AMP, which have gone before it.

Previous demutualisations have been a straight share giveaways. This time investors are being asked to pay for something.

"It's quite different from any of the other [demutualisations]," says Cavill White managing director Don Turkington.

"It's not all a free gift."

Tower plans to give policyholders a total of 53.1 fully paid shares in exchange for their membership rights. But it also is giving 42.7 million partly paid shares to members of subsidiary companies and wants to raise $350 million through new equity.

Besides the $350 million raised from new equity, the company has the right to issue up to 9.5 million additional shares through an over-subscription option. Assuming the shares are issued at about 630c each (the mid-point of the indicative price range) the company will raise an extra $59.85 million.

The capital raised from the issue will be used to transfer investments in subsidiary companies from policyholder funds to shareholder funds.

The conversion involves transferring the life and superannuation business (including the main fund) of the present Tower Corporation to a wholly-owned subsidiary of Tower Retirement Investment, which itself is a subsidiary of the new holding company.

To enable the transfer, Tower has to provide sufficient assets to meet "policyholders' reasonable expectations and to provide an appropriate level of solvency and capital adequacy."

Under the new structure policyholders will have reduced, but adequate, security of their policies, says Tower.

The question for policyholders is whether to keep their shares.

If the AMP listing is anything to go by, a significant proportion of new shareholders will cash up their giveaway within the first 12 months. AMP, in New Zealand, gave shares to 274,000 policyholders last year. Now, just 140,000 of its customers are shareholders. Similar trends can be found in other share giveaways, such as power companies.

Mr Turkington says a number of preconditions need to be met for the offer to be successful.

First up the offer has to be fairly priced.

"We don't want to have a Contact [Energy] and price it too high," he said.

"It's even more important they price the thing appropriately because this time some people are paying for shares."

Getting the price right is also essential for ensuring some decent support in the market after listing.

The price for Tower's shares has been a moving target this year. In April when it released an information memorandum Tower suggested the price would be between 600c and 800c a share. It has now scaled that back to between 580c and 680c a share. In this range the shares are expected to have a price/earnings ratio of about 13, which is towards the low end of the listed insurance company sector.

The second key point is that the prospects for growth have to be good. Tower is operating in a highly competitive and fluid market against some much larger players.

* Philip Macalister is editor of online money management magazine Good Returns.