Retail Rush Could Push Up T3 Float

The Age

Monday November 13, 2006

By MARC MONCRIEF

BROKERS expect institutional demand could push the Government to sell $12 billion in Telstra shares in the T3 float, which has already attracted more interest than the $8 billion originally expected.

Finance Minister Nick Minchin said applications for $9.8 billion in shares had been received in only the retail portion of the offer, prompting investors to ponder by how much the Government will increase the original offer to meet demand.

Institutional shareholders are yet to bid for their portion of the third distribution of Telstra shares, and a spokesman for Mr Minchin said there was no upper limit to the number of shares that could be made available if demand was strong enough.

Wilson HTM adviser Hugh Gengoult-Smith estimated the total value of retail and institutional entitlements at $12 billion, but entitlements will not necessarily translate into shares. Long-term political strategy will determine the final size of the sale, he said.

His intuition was supported by a statement in which Mr Minchin said the Government would not sacrifice stability in Telstra's stock just to squeeze more money from investors.

"Maximising the size of the offer is not our focus," Mr Minchin said. "In determining the final price and offer size the Government will be seeking to balance the objectives of ensuring a fair price for taxpayers and an orderly after-market for investors."

Telstra is Australia's most widely-held stock. Though shares have climbed during the past month to close at $3.92 on Friday, that is little comfort to investors who bought into 1999's T2 offering at $7.40.

Mr Gengoult-Smith said the Government would want to offer as many shares as it could without destabilising the market after the deal is complete and causing another share price catastrophe. Erring on either side of the ledger would be a liability, and there is significant pressure in both directions.

Over the next week, institutional bids will decide the final price of T3 shares.

A high price increases the risk shares will fall when they hit the market - a scenario too close to the T2 nightmare for the comfort of either the Government or the voting mum and dad investors they represent.

But the deal's payment structure could entice institutions to inflate their bids, because about half of the share's value is not due until May 2008. This allows investors to allocate money elsewhere until payment is due. Institutions may price their potential gain from using the money into their bid for Telstra shares, inflating the final price.

"The Opposition is going to have a go at them either way," Mr Gengoult-Smith said. Austock senior adviser Michael Heffernan said he expected politics would require the price of the second instalment to be low - between $1.50 and $2.

"The pricing of it is going to be on the lower rather than higher side, to make sure that the after-market is going to be upwards rather than downwards after people have their allocation."