Investors play the generation game

IT'S time for the million-plus shareholders in one of the most disappointing privatisation issues to date to cough up again for their shares - or sell them.

The investors are those who bought shares last March as part of the second chunk of the privatisation of National Power and PowerGen. Shares bought earlier are not affected.

Investors are now being asked to pay the second instalment - 160p or 170p per National Power share and 175p or 185p per PowerGen share, depending on whether you opted for the instalment discount or the bonus shares. "Call notices" for the money went out to investors last week. The deadline is 6 February, but you will need to take action sooner, depending on what you decide to do.

The choices for shareholders are: pay this second call; sell your existing partly paids to avoid the call; or, if you don't want to commit more money, sell some partly paids to raise the cash to pay the second instalment. Doing nothing is a bad option - the Government may then sell your partly paid shares in the stock market and deduct costs before sending you the proceeds.

Looking at the current share prices, however, many may question whether paying the second call is simply throwing good money after bad. Despite a booming stock market over the past year, partly paid National Power shares have fallen to 141p, well below the 170p small savers paid for them last spring. And PowerGen partly paids have hardly soared - they are at 201p compared with the 185p private investors paid for them.

But stockbrokers still recommend paying the call, if for no other reason than "it's the wrong time to sell," as Matthew Orr of London-based Killik & Co puts it. Selling now means losing money on National Power. And worries about the companies are already reflected in their low share prices, says Mr Orr, suggesting the risk of further big price falls is limited.

Prices have been particularly depressed recently, as the shares have lived under the shadow of a Monopolies and Mergers Commission inquiry into National Power's bid for Southern Electric and PowerGen's bid for Midlands Electricity. Whether these bids can go through will not be known until after the second call is due. But if they are given the go-ahead, the shares are likely to bounce back.

The shares offer a good dividend income and good growth of those dividends. Current dividends amount to more than 4 per cent of the price of the fully paid shares. For holders of partly paid shares, this figure is enhanced because full dividends are payable on the partly paid shares.

In addition, private investors benefit from incentives. At issue was the choice of an instalment discount - 10p a share on the second call and 15p on the final call due in September - or one bonus share for every 15, which investors will receive only if they hold the shares until March 1998.

The negatives are continuing regulatory and political worries. The MMC report could halt the generators' bids, while the Labour party has talked of a "windfall tax". But Mr Orr says the generators are not as politically sensitive as the regional electricity companies. He says that even people wanting to sell should probably pay up now and then look to sell later in the spring on the assumption that prices should recover.

If you do not want to commit any more money, you could sell some of your existing partly paids to meet the second call. Investors who decide to pay the second call should also bear in mind that the final call in September will put a further demand on their cash - 136p per National Power share and 142p for each PowerGen share, before any discount.

If you want to sell, you should do so by Friday, otherwise you will be required to pay the second call. To sell, most stockbrokers will need to have the latest interim certificate - marked with the number 3 in the corner and sent out last week - with the call notice still attached, in their hands before the Friday deadline.

One fairly straightforward way of selling is through NatWest's bigger branches equipped with "touchscreens". Take in your certificate, and you can sell on the spot for a minimum of pounds 20 per transaction.

If you are paying the second call, cheques must be received by the companies' registrars by 1 February to allow them to clear before 6 February. If your shares are held in Peps or nominee accounts run by your stockbroker, there may be other complications and deadlines. For example, if paying the call, instead of sending it in direct to the registrars you pay it through the broker or Pep manager.

q Helplines: National Power on 01903 503733; PowerGen on 0117 975 1592.