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A user's guide to the AMP facility

Monday, May 25th 1998, 12:00AM

by Philip Macalister

More than quarter of a million New Zealanders will be spurred into making an investment decision within the next fortnight as the AMP share float approaches.
The question for these 274,000 AMP policyholders who will receive shares in the company is whether to hold onto them, buy more shares or sell the shares and realise a windfall gain.
To help the process AMP has established a special facility, which could be best described as a pre-listing market exclusive to AMP shareholders.
This facility offers them the chance to sell their shares or buy more in favourable circumstances.
The deadline for making a decision on whether to use this facility is Wednesday, June 3.
Current speculation is that the AMP issue is going to list at a healthy premium and that its long-term outlook is also upward.

How the facility works
The facility has been established by AMP to allow shareholders to sell shares without paying brokers' fees, transaction costs or (in Australia) stamp duty.
Sellers can nominate to sell some or all of their shares through the facility and receive a price equivalent to the average price of the shares in their first five days of trading on the exchange.
If they use this facility no sharebroker fees, or transaction costs will apply.
Shareholders wanting to buy more shares have the option of buying A$1000 worth of shares. These buyers will shoulder transaction costs on a pro-rata basis to the number shares they buy up to a maximum of A$17.50.
How big the facility is won't be known until after it closes on June 3.
The facility price is made up of two components, namely the base price which will be set before stock market trading begins by AMP and the offer's joint lead managers.
Currently AMP is estimating the base price will be between A$12.50 and A$16 a share.
The second component of the price is 50 per cent of the average market price of AMP shares in their first five days of listing if the price is above the base price.
Sellers are protected from downside risk, while buyers are cushioned against the upside as the facility price is not to exceed the base price by more than 20 per cent.
The big decision investors need to consider is whether, on the buyer's side, the facility offers the best entry to acquire more shares, and on the seller's side whether it is going to give them the best price compared to the sharemarket once AMP lists.
Important factors to consider are:

  • an expectation of the base price AMP will announce on June 15 as the official start to trading.
  • a view on how the shares might trade in their first week
  • and an understanding of how the facility works.

A key factor in setting the base price will be the bids institutions make for shares in the period from June 9-12, that is after the facility closes and before listing.
The estimated range put on the shares so far is wide and difficult to interpret, however all the expectations so far are for a higher rather than lower price.
One broker values the stock at between A$13.90 and A414.85, however says that it is highly likely that initial demand will far outweigh supply, hence the early trading pattern of AMP shares may bear little resemblance to its underlying investment fundamentals.
One of the important factors to consider is movement in the sharemarket both in the lead-up and post listing.
Should the market head downwards the base price is likely to be at the lower end of the range, conversely a strong market run-up in the lead up to listing will move the price out to the high end.

Estimated base price

12.50

14.25

16.00

Buyers' maximum price*

15.00

17.10

19.20

Average price shares must trade at in first five days to reach max price.

17.50

19.95

22.40

Sellers' minimum price

12.50

14.25

16.00

All prices are in Australian dollars
* this is set at 20 per cent above the base price
As can be seen from the above table the shares would have to rise 40 percent above the base price in the first week of trading to trigger the maximum price.
Looking back at previous successful floats, including National Mutual, Colonial and Telstra cracking 40 per cent in the first week would be a sensational start to life as a listed company for AMP.
Possible scenarios
The following are four possible scenarios AMP shareholder considering either buying or selling should consider.
A strong and steadily rising market
If the shares finish, say, 20 per cent higher on average, the facility price will be about 10 per cent above the base price. Investors buying through the AMP facility will be better off as they will have acquired additional shares at 10 per cent discount compared to using the market.
A seller though will be worse off as a higher price could have been gained from the market.
The steadily falling market
An facility buyer will be worse off as the shares could have been bought cheaper on the market, while a seller will be very happy to get the base price.
A volatile market trending upwards
Buyers will be better off and sellers not so happy, although the loss they make may not be worth the market risk.
A volatile market trending downwards
Sellers will be the winners.

 


IF YOU CHOOSE TO BUY MORE SHARES

BUYING METHOD

USING THE FACILITY

ON MARKET

Price

Facility price

Market price

Pricing period

June 15-19

At time of transaction

Broker fees

Included in costs

As charged by broker

Transaction costs

A$17.50 max

nil

Limit on purchase

A$1000

none

Timing

Apply by June 3

Any time

 

 

IF YOU CHOOSE TO SELL SHARES

SELLING METHOD

USING THE FACILITY

ON MARKET

Price

Facility price

Market price

Pricing period

June 15-19

At time of transaction

Broker fees

Nil

As charged by broker

Transaction costs

Nil

Nil

Timing

Apply by June 3

Any time

 
The AMP facility closes at 5pm June 3, 1998.

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