Congratulations Telstra, You Big Fat Pig

ADELAIDE AUSTRALIA 21 November 2006 - At last the pig came to market.  In this case it was the big fat pig that was the Telstra (ASX: TLS) T3 share offer.  About a year ago it started off as a tiny little porker, almost Babe like.  The government hoped that something this small and cute wouldn't annoy anyone.  It would be small and cute enough that even the National Party couldn't kill it.  And it would look so harmless and cuddly that the ubiquitous "Mum and Dad" investors would invite it warmly into their homes.

WRONG!  It's a big fat lazy pig that has eaten into the pocket of millions of Telstra investors during the last six years.  It sits on the stock market in it's gluttonous pose continuing to gorge on fresh cash being thrown at it.  The masses throw money at it thinking it will transform into a magnificent beast.  Yet it just gets uglier by the day.

As you all know the Telstra 3 installment receipts debuted yesterday at 11.30am, only ninety minutes after the existing Telstra shares fell to $3.60.  Wouldn't all those Telstra shareholders that didn't participate in the T3 float - your correspondent included - be happy with that?

But that didn't stop the hyperbole.  "Strong early demand for T3 shares", the ABC reported, it went on to say, "The new shares or installments receipts have hit the ASX in style at $2.11" and then proceeded to close at $2.16.

The ABC reported triumphantly that when the price was at $2.15 at midday, "that is up 7 per cent on the $2 first installment price paid by small or retail investors; institutions paid $2.10."

John Curry from the Australian Shareholders Association told Reuters, "It's a good start and the initial holders could do reasonably well.  They could sell today and make 9 per cent profit."  He went on to say, "The government would be relieved, with an election only a year away, the government won't want to see people have another T2 disaster on their hands."

While Frank Villante, chief investment officer at Souls Funds Management said "There is an element of turnaround expectations apart from the attractive yield, the government is trying to ensure that the broader electorate doesn't walk away with a bad taste."

UBS head of Australian equities, Gerard Satur told News Ltd papers, "We probably surprised ourselves with the amount of turnover.  We had natural orders from both sides in Telstra throughout the day as customers wanted to transact sizeable amounts.  Investors were using the liquidity to get to whatever positions they desired."

News Ltd also quoted one cowardly broker who declined to be named who said, "The government took the pop out of this stock when they increased the offer size to $15.5 billion."  We are sure he or she isn't too bothered after no doubt placing a large amount of stock with his/her clients.

Despite the euphoria, the fact remains that for most investors this is not an easy case of taking the profits and running.  Most investors, if they wanted to come out of yesterday with a profit, would have had to have come up with a bit of their own financial engineering.

The gist of yesterday seems to be that investors were taking the opportunity of switching out of the old Telstra stock, claiming the capital loss and then reinvesting in the T3 in order to get the increased yield on the partly paid shares.  Not sure if the tax man will like that!

That may hold the stock up for the next year, but we still wonder what the appetite will be for this old dinosaur when the yield isn't umpteen percent.

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