Monday, February 20, 2012



Another nail in the coffin

Another nail has gone into the coffin of the government's case for selling state assets, with the Herald reporting that they are considering an incentive scheme to prevent "stagging" (selling those shares at a profit on the first day):

One market source said Treasury officials had travelled to Queensland to quiz officials over the state's privatisation process last year.

[...]

The Queensland Government, which was keen on QR National retaining local ownership, got around the stagging problem by introducing a loyalty scheme, which encouraged investors to stay on the share register for at least a year.

In 2010 the Queensland government sold a 60 per cent stake for A$4.6 billion. The price to institutions was A$2.55 a share while retail investors paid A$2.45 a share.

The scheme rewarded Queensland residents, who received one QR National bonus share for every 15 QR National shares held continuously since the IPO.

But to point out the obvious, investors can only make a first-day profit if the government has ripped off the public by setting the offer price too low. Meanwhile, these "solutions" cost even more money. For example, a 4% discount for retail investors would cost the public $240 million, while a one-in-fifteen loyalty scheme would cost up to another $400 million. That's means we'll get more than half a billion dollars less than the government is telling us.

The economics of selling these assets is already a losing proposition. Even according to Bill English, the savings on reduced borrowing will be less than the lost dividends. This makes that equation even worse. And it makes it clear that the government's purpose here isn't "reducing debt" as it claims, but simply to loot the state for the benefit of their rich mates.

(I see that The Standard is thinking the same thoughts here...)