Monday, 11th March, 2013
With the opening this week by the Government of Mighty River Power’s pre-registration, New Zealanders now need to consider whether or not to invest in one of our largest electricity companies.
The decision to make any form of investment – from buying a home or car to shares – requires serious consideration and homework: You need to research and take advice to ensure you are fully informed.
A decision to buy shares in Mighty River Power is no different. And, for first time investors, the time spent getting to grips with the process itself is even more important. All investments have benefits and risks, and people need to understand what they are, weigh them carefully against individual circumstance and ensure that the decision to invest is right for them.
Now is the time to begin that decision-making process.
In legal terms, it’s called ‘due diligence’, for the rest of us it’s ‘doing your homework’. It’s all about ensuring you have enough information – from independent, reliable, quality sources – to be comfortable with the decision you reach.
Research falls into two categories – share ownership and the company itself.
Understanding the principles of share ownership and whether shares are the right investment for you is the first step. There are a number of websites that can help build your knowledge base including www.governmentshareoffers.govt.nz which has a useful, practical guide to getting started in shares.
Many banks, investment banks and stock broking firms also have information on their websites that explain shares and how the stock exchange works.
You can also go to www.sorted.org.nz for a wide range of reference advice and materials on financial planning.
Talking with an accountant or a professional financial planner can also help you focus on your long term financial goals and whether share ownership is an investment option for you.
Some key questions to ask might be:
- Is share ownership an appropriate way to diversity my savings?
- Could share ownership play a role in meeting my long term financial goals?
- What are the benefits and risks of share ownership likely to be?
Once you have decided that you might be interested in shares, you need to look closely at the company and sector in which it operates.
How much do you know about Mighty River Power and how the electricity sector operates in New Zealand? Are you aware that Mighty River Power generates over 90 per cent of its electricity from renewable hydro and geothermal power? Did you know that it powers nearly one in five New Zealand homes and businesses? Or that it has 14 power stations? Now is the time to find out.
There is plenty of information available on the company’s website www.mightyriverpower.co.nz including their annual reports so you can evaluate how the company has performed in the past.
The Electricity Authority website www.ea.govt.nz is the best source of information regarding New Zealand’s electricity sector and provides a good overview. A particularly useful section to read is ‘About the Market’.
The final information you will require in order to make an informed investment decision will be found in the Mighty River Power Share Offer document. This won’t be released for a while yet, but in the meantime the more you swot up, the more knowledge you will have to draw on to understand the material contained in the Share Offer document when it comes out.
If you think you could be interested in applying for shares, there are a few benefits to be had from ‘pre-registering’.
Pre-registering is a process whereby you signal your interest in the share offers. There is no obligation to buy shares, but it means you will receive a copy of the Share Offer document as soon as it’s released. By pre-registering you will also be eligible for additional benefits, should you decide to buy shares.
The Government has said that a share allocation benefit of up to 25 per cent more shares will apply to Kiwis who pre-register. This benefit will only apply to New Zealand residents, living in New Zealand and to all applications above $2,000 if the Share Offer is oversubscribed.
In a nutshell, if you are pre-registered and meet the New Zealand resident criteria, you will receive up to 25 per cent more shares than someone who does not pre-register and applies for the same amount of shares.
Should you decide not to pre-register, the first $2,000 worth of shares is guaranteed irrespective of pre-registration.
Finally, it is worth noting that no one can make a fully informed investment decision before seeing the details in the Share Offer document. However, if you have done your homework in advance, understanding the Share Offer document and making that final decision will be a lot easier.
Irrespective of whether you decide to take part in the first of the share floats, the research you do now may come in handy further at a later date. At the very least it will certainly improve your overall financial literacy which in and of itself is a great goal.
For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett, Chief Executive, Auckland Chamber of Commerce.