Against prime shares

Published in The Age, October 2006 by Jesse Hogan

The generous terms offered to retail investors to participate in the third Telstra share offer are the very reason why financial advisor Graham Middleton is telling his clients to steer clear.

‘Good shares don’t require all this bullshit around them’ he says. ‘A good share issue comes out and walks away.’

Mr Middleton, a director and principal of Synstrat Management, likens the inducements in the T3 offer to developers who offer rental guarantees when selling apartments off the plan, in that it implies the rent will fall once the guarantee period finishes.

The 2.15 billion Telstra shares on offer T3 represent only about a third of the Federal Government’s 51.8 per cent shareholding (an additional 322.5 million shares could be sold if there is strong demand from institutional investors).

The remaining shares will be transferred into the Government’s independently run Future Fund, which has a mandate to begin selling down its multibillion-dollar Telstra shareholding some time after a two-year escrow period.

T3 investors will initially receive only an instalment receipt, which probably will be able to be traded on the stock exchange. The receipts will be converted into a full Telstra share once the second instalment is paid in May 2008.

Sale organisers are trying to dissuade investors from selling out before the part-payment period has ended by promising one bonus share for every T3 share they still own after that period ends.

Dale Gillham, chief analyst for investment company Wealth Within, says the extensive promotion of T3 is like ‘the Government going on a snake-oil salesman tour around the country trying to sell something that’s got no real value in it to people’.

‘They’re doing this huge $20 million advertising campaign to get mum and dad to buy it because the institutions don’t want to buy it, and to me if the institutions don’t want to buy it why the hell would I buy it?’

He expects Telstra shares will fall below $3 in coming years. As such, he is advising clients to avoid T3, then ‘wait and get a better deal later on’.