The very well-paid team of investment bankers flogging T3 will be delighted with the welter of unquestioning coverage this morning suggesting the smart money is already set just as the offer opens for ordinary punters.

“Wealth investors are buying T3,” trumpets the SMH, for example, as brokers have locked in confirmed bids for $4 billion worth of the thing. Even better is the statement by team leader Terry Campbell from Goldies Were that the broker firm allocation had to be scaled back – they wanted $4.5 billion worth.

See, it’s a sure thing, the wealthy with the inside running from the brokers are piling in so you’d be mad not to get some…well, that’s the pitch.

Overlooked is the fact that the brokers have been pushing T3 at their clients. It’s being sold, not just passed by on the shopping trolley for inspection. And it’s being pushed for good reason – 1.25% commission which is a lot more than they get in the normal course of buying and selling shares. That $4 billion in broker firm orders just earned the share salesmen $50 million commission.

But wait, there’s more. Some brokers have found a way of double-dipping. The recommendation to clients already owning Telstra shares is to sell them and replace the holding with broker-firm T3. Here’s an example of the pitch. The T3 offer is more attractive than your existing TLS for the following reasons:

  • Retail investors subscribe for $2.00 vs the $2.10 paid by institutional investors;
  • If you are a long term holder you receive a bonus share for each 25 shares held in 18 months;
  • Since only the first instalment is paid upfront, the yield over the first year is 14% fully franked. You still have exposure to all potential capital growth;
  • If you bought any shares in T2, or you have bought shares on market which are currently sitting at a loss, you may receive a tax benefit by crystallising that loss;
  • You free up part of your cash to invest in other opportunities.

Nice. Overlooked of course is the fundamental reason for T3 carrying such rich inducements. The standard risk/reward ratio hasn’t been repealed and there’s plenty of risk in what happens next at Telstra. We won’t know for another year or so whether Sol Trujillo is a success or failure as CEO, but there’s a very good chance that the fat dividend will be reduced. And the dividend yield won’t mean much if the capital value collapses anyway.

If it was a sure thing, it wouldn’t have to be pushed.

Disclosure: The Pascoe family super fund did have a few Telstra shares which have been traded in for T3. We have a broker to support.

Peter Fray

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Peter Fray
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