Financial professionals snapped up A$4 billion (US$3 billion) worth of shares in Australian telecoms giant Telstra but small investors were likely to be more wary, economists said as the retail share offer opened yesterday.
Another A$4 billion worth are available to individual and institutional buyers until Nov. 9 as the government unloads a third of its 51.8 percent stake in the troubled telco.
Finance Minister Nick Minchin said the government was pleased with the level of support for the sale, which saw 1.1 billion shares sold to brokers and financial planners who applied for allocations on behalf of clients.
But market analyst Marcus Padley said the offer may be less appealing to "mum and dad" investors.
"Those are the sort of people where, if you were talking about making 5.0 percent on T3 instalments, it's really a lot of bother for a small return," he said.
The float has been dubbed T3 as it is the third tranche of Telstra shares offered by the government after T1 in 1997 and T2 in 1999.
"I think a lot of people have decided, with T2 in the back of their minds, that they just won't bother this time," Padley said.
Investors in T2 paid A$7.40 for their shares, which are now worth A$3.61 after closing down A$0.02 or 0.55 percent yesterday.
In the first government offer in 1997, T1 shares sold at A$3.40 for institutional investors, discounted to A$3.30 for Australian retail investors.
The sweeteners offered in the latest sale are more attractive to larger investors, Padley said.
"The instalments are going to be a low-risk, low-return investment in the short term, so people are gearing into them to try and make a small return," he said. "For small shareholders, there hasn't been that much interest because really, a small return on a small holding is not that exciting."
Buyers will pay in two tranches, with retail investors paying A$2 per share in a first instalment, representing a A$0.10 discount to the first instalment price for institutional investors.
On this price basis, the stock will yield 14 percent in the first 12 months, based on a forecast A$0.28 a share total dividend for the year to next June.
The price of the second and final instalment will be determined by a two-day bookbuild for the institutional offer which closes on Nov 17, with payment due on May 29, 2008.
"While the yield appears attractive on face value, questions remain over the underlying Telstra business, the pricing of the second instalment and whether or not this dividend is maintainable," brokers Tolhurst Noall said in a research note.
The government is offering 2.15 billion shares plus an over-allocation option.
The remaining portion of its 51.8 percent stake to be transferred to a separate investment fund established to cover public service pension payments.
The fund will not be able to sell those shares for two years.
The government had originally planned to offer all its shares in one go to the market but the firm's plummeting share price forced Canberra to abandon that plan.