When T3 instalment receipts rose 3c to a record $2.71 yesterday, another magical milestone was reached by the lucky investors who snapped up the 34.8% stake in the company that the Federal government decided to sell in a huge bargain basement fire sale.

That milestone was $3 billion in paper profits and a staggering 35% paper gain in just four weeks.

While a modest profit is perfectly acceptable, these gains are now reaching embarrassing proportions for the government – especially given its decision to double the size of its T3 offer from 2.15 billion shares to 4.3 billion.

Having been over-run in the rush by investors, didn’t the government twig that it had priced the offer too generously. Sure, the fat 1.25% commission to brokers and financial planners saw 1.2 billion shares applied for in the broker firm offer and another 1.3 billion in applications came from the general offer, but the government still didn’t need to double the size of the offer.

That decision to increase the sale from 17% of Telstra to 34.8% has now seen taxpayers drop $1.5 billion on paper.

The government will eventually receive $15.5 billion from T3 investors, but so far there is only $8.6 billion in the bank from the 4.3 billion shares which have been paid up to $2. These instalment receipts were yesterday worth $11.65 billion.

Sure, the Future Fund’s 17% Telstra stake is also rising but if the government had only sold the 17% it originally announced, the Future Fund would be sitting on a 34% stake worth $17.8 billion and the Federal Government’s balance sheet would be $1.5 billion closer to break even point.

Don’t forget that this is a balance sheet which still shows negative assets of about $15 billion – making the federal government the most insolvent institution in the country, albeit one with a handy taxing power.

Given the private equity craziness pervading the market, it’s surprising that Macquarie Bank hasn’t yet offered to take out the Future Fund’s residual stake. Maybe that will come after Qantas has been put to bed.

Peter Fray

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