Home > Economic policy > Smoke and mirrors yet again (corrected)

Smoke and mirrors yet again (corrected)

November 20th, 2010

The QR float came in at the bottom of the indicated price range ($2.55 a share for institutions, $2.45 for individuals) and the government sold only 66 per cent of the shares, implying a return of $4.1 billion. However, the government announced a return of $4.6 billion. Unsurprisingly, these figures are bogus. To get there the government included some extras, picked up in later reports:

Dividends due to the government from the company and cash proceeds from a debt facility make up the difference between the $4.1bn worth of shares issued and the total revenue figure of $4.6bn.

It’s pretty rich, but par for the course for this government, to treat the dividends from an asset you are selling as part of the sales proceeds.

A couple of points

* The sale just scraped in at the government’s minimum. What are the odds that some favours were called in, and future favours promised, the get the float over the line?

* As I mentioned last time , the government took on $4.3 billion of extra debt when it restructured QR for sale. So, in cash terms, this sale actually leaves the government marginally behind.

Update In the original version I used reports that said the government had retained a 40 per cent holding, which created some additional puzzles. I’ve now fixed this.

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  1. darren
    November 20th, 2010 at 18:27 | #1

    this is a horrific outcome. Treasurer Andrew Fraser just sold the house and kept the mortage.
    Don’t forget that there are about $200million in transaction costs too.

    Plus in retaining 40% of the new company the State govt also retains exposure to 40% of all future debt and borrowings of the new company. And now that that company is relatively debt-free (thanks to the gift of the people of Qld) have a guess what’s likely to happen in the immediate months to come????

  2. Alice
    November 21st, 2010 at 07:34 | #2

    @darren
    Darren – I think you are right. The company will now borrow a bucketload knowing the Qld taxpayers will foot the bill (again) and the executives will pay themselves obscene amounts. So predictable. In a few years the private group will claim their endeavours failed and will come back seeking compensation from – you guessed it – QLD taxpayers.
    Bligh and Fraser should be referred to ICAC – somehow. Regardless, they should be banned from practising as ministers/politicians. They do ban directors when they breach their duties as directors. Where is this provision for political leaders?

  3. November 21st, 2010 at 19:56 | #3

    I just did some figuring based on the numbers in the Qld Government media release and that does seem to confirm $4.1bn being raised from retail and institutional share offers so far:

    1.6bn shares issued.
    34% of those issued at retail price of $2.45 = $1.3bn approx
    66% of those issued at institutional price of $2.66 = $2.7bn approx

    Which gets up to $4bn (I think this comes near to $4.1 if I use exact figures).

    Unless I’m missing something that seems to show it’s nearer $4.1bn than $3.6bn raised so far. That does of course leave the extra lazy half-billion the government claims they raised as a result of the share offer to be explained away.

  4. November 22nd, 2010 at 14:54 | #4

    They listed today and are trading at about $2.65.

    455,000,000 or so have been traded so far.

    That’s about $1.1billion of QRN just today.

    Is there any way to find out if the government (eg: via the treasury or QIDC etc..) is in the market as a buyer? It looks like a lot of people are taking their 20 cents and running and someone is a solid buyer at $2.65.

    Interesting.

  5. John Quiggin
    November 22nd, 2010 at 14:57 | #5

    It turns out they kept less than 40 per cent of the shares, so the 4.1 billion is right. I’ll update when I get a moment.

  6. darren
    November 22nd, 2010 at 17:43 | #6

    funnily enough my posts to Fairfax haven’t been making it onto the board…anyone else having similiar experience? Just in case, below is my recent post, cheers

    “the back-story is the fact that the Qld govt retained most of the QR’s accrued debt, equal to $4.3 billion. That was QR debt that the Qld govt assumed to ‘sweeten the deal’. (love that term)

    The actual sale is about $4.1 billion–the $4.6 billion figure is misreporting of future earnings ie dividends as part of the sale price. It isn’t.

    With a relatively debt-free balance sheet the next trick from here for the new Board will be massively borrow to increase leverage again. And the Qld govt, as part owner, will be exposed to 1/3 of the billions of debt being sought out.

    So the maths is clear: $4.1b less $4.3b= a loss of $200m. There’ll be no retiring of state debt out of this mess.
    Ooops nearly forgot the transactions costs, add a further $200m to the bill. That means a total loss of near $400 million.” [posted 17:43 Mon22November2010]

  7. BilB
    November 22nd, 2010 at 17:47 | #7

    4.6 billion dollars according to the news now.

  8. darren
    November 22nd, 2010 at 18:39 | #8

    UPDATE: post made it on to BrisTimes story. Other stories have had ‘comments’ closed.
    Prof Bob Walker (USyd) has just reminded me of “greenshoe” option that was requested by Qld govt investment bankers and approved by ASIC: ‘buying back a further 6 per cent of QR National stock over the next 30 days in order to stabilise a volatile share price.’ (SMH)

    This explains the sell-down to 33%, balance (ballast) is 6% which takes the Qld govt back up to the 40% self-imposed ceiling. All part of the strategy and tactics of distancing the true free market from the political consequences of poor performance…if its goes bad get some distance between that market assessment and the actual sale date.

  9. November 22nd, 2010 at 20:35 | #9

    Thanks, darren. I just found the “greenshoe” gem too (via Fairfax, surprisingly).

    As far as I can tell, that means there is an artificial floor at the issue price but I’m still wondering who is buying up the price to $2.65.

    Also, if there are 2.6 billion shares and 476,315,584 (according to foreign owned ASX) were off-loaded on day one, that looks like a huge churn (what, 20%? For a ‘growth’ stock?).

    When the Queensland government is involved: “where there’s smoke there’s mirrors!”

  10. Alice
    November 22nd, 2010 at 21:38 | #10

    @darren
    You mean the bastards in QLD Labor gave themselves the option of deliberate market manipulation by buying back 6 percent within 30 days of the float to sucker the mums and dads and keep the sinking price of the share floating (on hype)?

    Oh it just gets worse and worse. They think people are fools. They have to go. They have to get slaughtered at the next election. They are no better than NSW State Labor. Labor has been infiltrated by a bunch of right wing greedy manipulative bastards who do make Bjelke Petersen look snow white. Its happened at NSW state level as well. Sell everything and bugger off somewhere globally remote so we can start rebuilding the economy.

    They have lost my vote for three decades and thats a promise (thats about as long as it took since Hawke and Keating developed their business model to outliberal the liberals and the rest of the party fell to the right and fell apart). Someone else said and I agree.

    THERE SHOULD BE REFERENDUMS OVER THE SALE OF PUBLIC ASSETS.

    WHERE ARE THEY?

  11. darren
    November 23rd, 2010 at 03:04 | #11

    very sad to watch the great train heist play out before our very eyes.

    The ‘positive’ news stories and newspaper headlines about the price going up and the overall misreporting of the sale price crate in me a great doubt about the abilities and judgment of the mainstream media. I just dont think they’re up to the job required any more.

    John’s right: these numbers are bogus. The market manipulation (ie greenshoeing) is ASIC approved, the investment bankers pull hundreds of millions from the public purse and the media just runs the ads and fails to report.

    If a story worth $4.1billion isn’t worth proper coverage what is??? –and its far from over wait for the ramp-up in company debt as they leverage, wait for the obscene executive pay rises and bonuses, wait for the inevitable worker sackings and discontinuing of services….

  12. jquiggin
    November 23rd, 2010 at 06:25 | #12

    I also found the greenshoe stuff pretty startling. I plan to give them a blast in the Fin.

  13. November 23rd, 2010 at 11:22 | #13

    darren:
    ["great doubt about the abilities and judgment of the mainstream media. I just dont think they’re up to the job required any more."]

    Unfortunately, they are doing exactly the job “required”, it is a sad fact that the “job” has nothing to do with properly informing the citizens, speaking truth to power or representing our interests.

    It is useful to always remember that we are not the MSM’s customers, we are their product. Our readership is what they sell. It is a tragedy that the managerialism now holding rupert’s ABC means that it also treats us as a product and mimics the others.

    Yesterday the parliament debated the long overdue ALP promise to re-instate the staff elected ABC board member position. Did it get reported anywhere?

    Looking forward to the fin article.

  14. BilB
    November 23rd, 2010 at 11:58 | #14

    Very astute, Megan. I had an incling of a similar thought a while ago but would not have phrased it any near as well.

    What does it mean though?

  15. darren
    November 23rd, 2010 at 15:48 | #15

    Terry McCrann writes that ‘greenshoeing’ (in today’s C-M) “the joint lead managers can buy, or merely just bid, for stock”.
    Can ASIC please explain the difference between this practice of greenshoeing and phantom bidding at auctions?
    And why has one been outlawed and the other approved by ASIC?

    thanks Megan, we’re back to the wisdom of Edward R Murrow: “Do not be deluded into believing that the titular heads of the networks control what appears on their networks. They all have better taste. All are responsible to stockholders, and in my experience all are honorable men. But they must schedule what they can sell in the public market.”

    Maybe the true contribution of the Greens in this hung parliament will be media ownership reforms and the reduction of the undue control of a certain american over Australia’s media landscape.

  16. Alice
    November 23rd, 2010 at 17:44 | #16

    @darren
    Dummy bidding just sums it up beautifully Darren.

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