time to short lower float price

Reversal may hit Telstra sale

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Richard Webb
June 4, 2006
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THE Prime Minister's about-face on the $3 billion Snowy Hydro privatisation is likely to reduce the share price for the final Telstra privatisation later this year, investment experts say.

Representatives of many Australian investment houses were overseas hawking the Snowy Hydro offer when the Prime Minister cancelled the sale.

While the Snowy float was relatively small for the big Asian investment houses, the damage will come from the Government's sudden and unexpected change of heart, they say. "It's been incredibly embarrassing for everyone," said one industry source who had been on an Asian roadshow.

"Offshore fund managers just don't like this kind of thing. They say, one minute you are telling us you do want to sell, and the next minute you are doing the absolute opposite."

Ivor Ries, a senior research analyst at the stockbroker E. L. & C. Baillieu, had been in Hong Kong promoting the Snowy float early last week.

He said the decision had increased "the sovereignty risk" that foreign investors would now place on Australia as a place to invest.

"It means they won't have the same level of confidence in our decision-making processes," he said. Mr Ries said the Snowy move could take the edge off the final leg of the Telstra privatisation — worth $24 billion or so — later this year.

"It will probably reduce the T3 sale price a bit," he says.

That is because the T3 sale process is expected to be heavily geared to enticing overseas investors to buy Telstra stock, given that local mum and dad investors will be less willing after the disastrous performance of the T2 issue in October 1999.

People who bought T2 have watched their investment halve. But AMP Capital Investors head of investment strategy, Shane Oliver, said: "If T3 was happening now, then yes, I would say it wouldn't be good. But it is still some months away, and I think it will be all forgotten about by then.

"As long as government doesn't make a habit of it, we will be OK."

Meanwhile, the Federal Government is unlikely to back a referendum to transfer control of waterways to the Commonwealth. Senator Bill Heffernan, the NSW Liberal who led a Coalition backbench revolt against the Snowy Hydro sale, has urged a national rethink of water management.

He suggested the Commonwealth should assume responsibility for waterways. But Prime Minister John Howard's parliamentary secretary with responsibility for water, Malcolm Turnbull, said urgent solutions were needed, and putting a referendum to voters would take years.

"We need urgent solutions to issues around water today," he said. "Trying to get a referendum up and passed would take too long. It would take years."

Senator Heffernan said a national debate over water management was urgently needed. "And at the end of that debate it might be that people see the sense of one government having responsibility instead four governments," he said.

With JASON KOUTSOUKIS

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