Telstra fuels an equity boom
Australians, big exporters to Asia, are bracing themselves for economic trouble. But, as Ian Rogers reports, stock prices are still rising. Investors can't get enough of big new issues such as telecoms company Telstra.
In mid-March the Australian government decided to follow up on the success of its initial privatization of Telstra by selling off the whole of the Australian telecoms company. The sale will be the most significant event in the country's capital markets in the decade-and-a-half since financial deregulation was introduced.
The sale in November 1997 of a 35% tranche of Telstra established the mood, and the demand, for shares in the country's dominant telecoms company. Partly-paid shares in Telstra (dubbed instalment receipts) sold for A$1.95 ($1.32) and rallied steadily to A$3.80 by mid-March.
Last year's IPO attracted 1.8 million people to the telecom's share register. Half of these shareholders made their debut as individual share investors, a choice the financial services industry hopes these novices will soon repeat. The government also wants to use privatization as a means to develop a share-owning culture among Australian householders.
One long-term bonus of Telstra's privatization is that it will swell the market capitalization of Australian equities, attracting more international capital to the stock market and increasing its liquidity. "It's important in terms of spreading ownership and lifting the free float of the market," says Trevor Rowe, the Sydney-based chairman of Salomon Smith Barney's Asia-Pacific operations.