23 Jul 2012

Long-term share ownership a goal - PM

4:10 pm on 23 July 2012

Prime Minister John Key says the bonus share scheme to be offered to local investors in Mighty River Power is aimed at building a culture of owning shares for longer.

At the National Party's annual conference over the weekend, Mr Key announced a purchase guarantee for individual New Zealand investors and a bonus loyalty scheme.

Shares in Mighty River Power, the first of the four state-owned energy companies up for partial sale, are expected to be on the market in September.

Individual New Zealand investors will be guaranteed a purchase of up to $2000 worth of shares. The minimum investment is $1000.

Mr Key is confident plenty of New Zealanders will be able to afford to buy shares, though acknowledges they won't be within everyone's reach.

Labour Party state-owned enterprises spokesperson Clayton Cosgrove says the guarantee means nothing to the many New Zealanders who don't have the ready cash.

"I don't see many Kiwi families who've got $1000 or $2000 just sloshing around their back pocket."

Under the loyalty scheme, New Zealanders will be given bonus shares if they hold on to their original investment for a minimum period, probably three years.

Mr Key told Radio New Zealand's Morning Report programme the aim is to build long-term share ownership.

"We know in New Zealand that a lot of New Zealanders haven't owned shares before and we're trying to make sure that we build a culture of New Zealanders owning shares for longer."

He says to the best of his knowledge such schemes have worked in other countries.

However, opposition parties say taxpayers will have to subsidise the loyalty scheme.

Greens co-leader Russel Norman says it is a deeply cynical ploy to try to make the sale of shares in the public assets more popular.

He says the bonus shares will be at the expense of every person in New Zealand who doesn't buy a share.

Mr Key says loyalty schemes were possible for the three other energy companies due to be partially sold but this is yet to be decided.

Those companies are Genesis Energy and Meridian Energy and miner Solid Energy.

He says there won't be a loyalty scheme for the sale of further shares in Air New Zealand - already 27% owned by non-Government investors.

Loyalty schemes

Financial journalist Rod Oram says bonus schemes in countries such as the United Kingdom have been shown to deter investors from selling shares to make a quick profit.

Once the bonus period was up there was often a heavy selldown, especially of the free shares, but after that many investors were content to hold onto their remaining shares for years, he says.

Milford Asset Management investment adviser Brian Gaynor says 500 banks will be offering information about the sales, but novice investors will need advice, not just information.

He says most of the 100,000 hoped-for new investors are unlikely to have a broker or investment advisor to get that advice. "That's the only real flaw I see."

Mr Gaynor says his company will not be making any decisions about investing in Mighty River before seeing the prospectus.