National's final asset sale justification is proved false

Research by the Greens into just who bought the Mighty River Power shares show that those Mum and Dad investors were more like 'Mummy and Daddy dahling' investors

It's no secret that I'm no fan of National's partial asset-sales programme. To me it's always seemed like selling the rental property to pay to renovate the spare room. Why would you give away the long-term returns for the sake of a quick buck to spruce up a few schools, hospital and roads? Having said that, it's not the nuttiest of ideas, either.

What would have been really nutty is to follow the Douglas-Richardson-Brash prescription and sell the whole lot; a 49 percent sale dilutes some of my ideological outrage, just as National intended. I believe power supply is core to New Zealand Inc and the New Zealand that isn't incorporated but simply ensures its citizens have what they need for a full and rewarding life. A warm home, an oven, a bit of telly and internet are all part of that and require electricity. So government ownership is right and proper, especially when the power suppliers can still be run along commercially sound lines.

But National's partial sell-off nipped that gut argument in the bud; we still owned the majority and the people still had control. Good. Opponents were limited to arguing about loss of revenue and the fact ownership by all would become ownership by fewer.

Having cut off some of the ideological rage, National came up with a range of arguments to justify its plans. But for me the only two with any real merit were 1) that the money earned from sale would mean less borrowing and debt and 2) people with money to invest might turn to the share market rather than the investment property market.

Less debt and more investment in the productive sectors are a lot like mom and apple pie – hard to oppose. Heck, even Labour is saying it would have moved heaven and earth to reach a surplus next year and even the Greens shake their fist at second home buyers.

But of course it's not as simple as that. I've always thought National and Labour were wrong to be so obsessed with an urgent return to surplus. Just as interest rates for mortgages are at their lowest levels since Adam sucked his thumb, so are borrowing rates for countries. If those schools and hospitals need work – and in Christchurch they obviously do – then the good news is that the need to rebuild our second largest city comes at a time when cheap money is available and we don't need to sell assets to fund the work.

So while you can make a case for justification #1, I think it's fundamentally tosh.

So what about justification #2? Well, at first blush National's report that 113,000 retail investors had bought shares in Mighty River Power seemed like some sort of vindication, especially when it was reported that 77,000 of those were first-time investors.

But the Greens today seem to have done for that second justification as well. A press release this morning in Russel Norman's name gives us more details about those 113,000 investors and the shares they bought.

As National had reported, those 113,000 investors bought 26.9 percent of the company.

But those shares weren't spread evenly amongst those buyers – half of them were bought by just 13,000 of those investors. They bought, on average, $35,000 worth of shares each. Straight away, that tells you these are people with considerable wealth.

But burrow down deeper and the Greens say a select group of fewer than 400 individuals, trusts, and organisations bought 10 percent of the retail shares with an average investment of nearly quarter of a million dollars each.

So while 113,000 buying 26.9 percent – 77,000 of them new investors – sounds like some sort of success, 400 people buying 10 percent sounds like a win for the old school tie.

Justification #2 – sunk. Says Norman:

“The truth is that 98 percent of New Zealanders bought no shares at all. Half the retail shares went to just 0.3 percent of the population, and a tiny group of just 400 wealthy individuals and organisations got 10 percent of the retail shares.

“National’s asset sales have been a failure in its own terms. The hundreds of thousands of eager buyers that Mr Key promised didn’t show up, so he sold the shares to a small number of wealthy people instead. The shares are not widely held; they are overwhelmingly concentrated in the hands of a few".

Rather than mum and dad investors being at the front of the queue, it seems more like 'Mummy and Daddy dahling' investors grabbing more than their fair share of a core New Zealand asset. A company that serves the needs of us all is now under pressure to deliver returns to a select few.

That second justification offered by Bill English, John Key and Tony Ryall that partial sales would create a new era of citizen capitalism has been sadly, yet predictably, undermined.

So we're left with no good reason for the Mighty River sale and certainly no reason for another sale to take place.

The capital market experts preaching the value of the sale are looking more and more like ideological cheerleaders rather than considered analysts and the political wrangling between left and right is raising serious questions about the value of any further floats.

Some might say the stagnant share price of Mighty River Power is also an argument against, but I think it's nonsense to pass judgment on the true value of a stock when it's only been trading for a few weeks. It's far too early to say whether it was a good buy or not.

But what's increasingly clear is that, ideology aside, Mighty River Power was not a good sale and, while National is clearly committed to the Meridian sale, it must find a way to stop there and quell its desire to keep selling.