There was a lot of misplaced hand-wringing and consternation over the float of the second tranche of Telstra on Monday. Investors felt disappointed at best and cheated at worse. Too bad. Investors had obviously thought that the second tranche would be a repeat of the first tranche two years ago when a third of Telstra was floated and the share price doubled in a year. That first float was widely praised as “”successful”. In fact it was a dismal failure because a public asset had been grossly undersold. Taxpayers and the public in general lost. They lost not only to small “”mums and dads” investors but also to large institutional and foreign investors.
This time, however, the Government has by sheer chance got it right. The value of one-third of Telstra was set at $16 billion which came out at $7.40 per full share or $4.50 for the first instalment for personal investors. The market put the price at $7.37 a share on Monday. In short, this time the Government sold Telstra for a respectable market price. It did not flog of a valuable public asset below value. That result is more due to good luck than good management. Markets in general dropped dramatically on Monday. That drop followed an earlier fall of Telstra stocks from a high of $9.20 in January.
The result in good in other respects. It may add some sobriety to the market which was in danger of running away. Privatisations that result in large windfall capital gains are not in the long-term interest of the majority of Australians. Ultimately bubbles burst causing widespread damage. Steady gains comprising a good mix of capital and dividends are better.
The float means that Australia has the highest proportions of shareholders in the world. That will be an important element in wealth distribution. Shares should not be the preserve of a few per cent of people. With computerisation it is a fairly easy for companies to maintain share registries of very large numbers of small holders.