From far and wide, the Government was warned that now was not the time to issue shares in Meridian Energy, the jewel in its power company crown. Too many factors were arrayed against a successful part-float, and the sensible thing would be to wait until circumstances improved. The words of caution have proved prophetic, with just 62,000 New Zealanders investing in Meridian, and the sale raising a below-expected $1.88 billion. Even the Minister of Finance came close to conceding this was a disappointing result.
But just how disappointing? The Government's damn-the-torpedoes approach suggests that its motives, and the yardsticks by which it measures the outcome, may owe little to some of its previously stated justifications for the asset-sale process. It has pressed ahead not, for example, because it genuinely covets the idea of a shareholding democracy, under which a large number of mum-and-dad investors enjoy the fruits of stakes in fully or partly privatised utility companies. Nor is it fully committed to the need for the sales to be an overwhelming success, thereby cultivating interest in the local sharemarket.
Rather, the Government appears motivated primarily by an ideological commitment to its part-privatisation programme. Recent polling suggesting it will face a strong election challenge from Labour and the Greens next year has merely increased its determination. Thus, it was prepared to ignore the warning signs. The upshot may be a Meridian deal raising less than the maximum $2.25 billion, but Bill English might, indeed, be "pretty happy" that something approaching this will be realised. And the Government will be especially content that another of its assets has an ownership model that will benefit from the disciplines of the market.
But that model would be so much the better if a large number of small investors were involved. The 62,000 investors in Meridian are far fewer than the 113,000 who bought shares in Mighty River Power a few months ago, even though the terms of the latest part-float were more generous.
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The Government attributed this to Labour and the Greens' plan to establish a single buyer to purchase all electricity generation. But that policy was in the public arena before the Mighty River sale. Its poor sharemarket performance, stemming in large part from a faulty price-setting process, was directly responsible for the limited interest in Meridian. To a lesser extent, uncertainty over the future of the Tiwai Pt aluminium smelter, Meridian's biggest customer, was also unhelpful.
The major pity is that only 16,000 of those who put money into Meridian are first-time investors. Most of those who dipped into their pockets found the dividend yield attractive enough to buy large parcels of shares. That outcome may not worry the Government unduly. It is, nevertheless, unfortunate. More people have to be attracted to the sharemarket, and not just to revive its fortunes. The Government's programme represents an outstanding opportunity to cultivate that interest. In so doing, it would help to remedy the current unhealthy investment emphasis on the housing market. Unfortunately, the Meridian offer helps that process only to a very limited extent.
It also does little to inspire confidence in the part-float of the final power company, Genesis Energy. The Government, however, has no choice but to push ahead. It would make no sense to pause now, leaving Genesis with a different ownership structure. But an acceptable level of investor backing will depend on innovative salesmanship.
The level of support would have been guaranteed if the Government had been prepared to delay the sale of Meridian shares on the basis that it was confident of being re-elected in 2014 and of aluminium prices improving during its next term. Clearly, however, it is driven by other priorities.
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