An amazing 151,978 individuals have already pre-registered for Mighty River Power shares indicating that the company may attract more than the record 225,000 Contact Energy IPO shareholders.

But how does the Crown, and the company, make sure that they continue to hold their shares beyond the first few months?

The following figures show the total number of Contact Energy shareholders;

May 1999 225,000 (on listing)
November 1999 190,200
November 2000 164,600
November 2001 121,200
Latest 75,500

Contact Energy listed on the NZX on Tuesday 11 May 1999 after issuing shares to 225,000 investors at $3.10 each. By the end of its first week the share price had reached $3.51 on very high volume. The strong share price performance encouraged a large number of investors to sell.

Contact Energy had no loyalty scheme or any other plan to encourage investors to hold their shares.

By contrast Queensland Rail, which was sold by the Queensland Government and is now called Aurizon, has had the following shareholder numbers; 

November   2010 79,500 (on listing)
August 2011 62,500
Latest 58,700

The Queensland Government offered the following loyalty scheme to investors;

–          Queensland residents received one free share for every 15 shares received in the IPO if they held their shares for 12 months (up to a maximum of 675 loyalty bonus shares)

–          Non-Queensland residents received one free share for every 20 shares received in the IPO if they held their shares for 12 months (up to a maximum of 500 loyalty bonus shares)

In addition individuals paid $2.45 for their Aurizon shares and institutions $2.55.

Aurizon shares immediately rose to $2.80 after listing on 22 November 2010. This encouraged a large number of investors to sell their shares even though they would miss out on their loyalty bonus.

Contact Energy and Aurizon illustrate the difficulty of encouraging investors to hold their shares, particularly if share prices perform strongly after listing.

Mighty River Power’s loyalty bonus will have to be very attractive, and the company’s investor relations strategy very proactive, if it wants to keep most of its shareholders on board after listing.

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford Funds Limited holds shares in Contact Energy on behalf of clients. Milford may subscribe for Mighty River Power shares following a review of the offer document which is yet to be released.