By Pattrick Smellie
Dividends lost as a result of partial privatisation of state-owned enterprises will be more than offset by the savings on government debt that the sales will allow, Finance Minister Bill English’s Budget Policy Statement says.
The forecasts are subject to considerable uncertainty, since no sales have yet occurred and their timing could change, according to economic and other factors, although the government has included estimated impacts from asset sales for the first time because of the advanced state of the initiative.
First out of the blocks for sale of up to 49 percent of its shares to private investors is power company MightyRiverPower, which the BPS says is on track for an initial public offering in the third quarter of this year.
The projections run for four years, from the year to March 2013 through to March 2016, and assume a cumulative reduction in government debt of $6.1 billion.
It estimates debt servicing cost reductions of $266 million a year, offsetting estimated lost dividends to the government of $200 million a year.
However, when the SOEs’ retained earnings are included, the estimated forecast profits foregone total $360 million, more than the $266 million of savings in interest payments on government debt.
The government will retain at least 51 percent shareholdings in the partially privatised SOEs, and would not normally expect to have access to all of their retained earnings, which are typically used to strengthen balance sheets or fund future development.
English said yesterday it was possible the government may sell less than a 49 percent slice of each SOE, to allow them to raise additional capital to fund growth plans without having to seek new capital from the government.
“Over the mixed ownership programme, the forecast finance cost savings exceed the forecast foregone dividends,” the BPS says. “However, the forecast finance cost savings are less than the forecast forgone profits. This is because state-owned enterprises are expected to act as profitable companies and therefore over time to earn an appropriate commercial rate of return that reflects the risk of owning such companies.
“In effect, the Crown is exchanging an expected stream omf income for a (risk adjusted) equivalent amount of cash now.”
The forecasts also assume the government will sell the minority stakes in SOEs at a value greater than their book value and are based on a mid-point for the value of the assets of $6 billion, which themselves are a fraction of the government’s total assets of $245 billion.
The government is justifying the sales on the basis the $5 billion to $7 billion raised will allow investment in new schools, hospitals and other key infrastructure without borrowing more government debt.
Other reasons for sale are given as improving investments available to New Zealanders and deepening the country’s thin capital markets, allowing the SOEs access to new capital without seeking it all from the government, and allowing “sharper oversight” of their commercial performance because they will be listed on the NZX.
35 Comments
Really?
With interest rates at current levels I doubt it.
When you sell an asset, you don't only lose the dividend but also any capital growth. Such strategic assets as electricity generators should not be sold (but by all means sell the likes of Air NZ).
It would be far better to remain control of these stragic assets by transferring ownership to the NZ Super Fund, that way debt is reduced but control is maintained.
Why can't the NZ Super Fund hold all the income producing SOEs, so Government debt is reduced, the Fund gets more NZ exposure and growth in the NZ economy remains for the benefit of all NZ. It's not rocket science, just a simple way to improve the books and keep NZ growing and economically strong.
What exactly is the point of the NZ Super Fund risking money in other countries often poorly performing assets?
After all the only way investors will make money out of these strategic assets is by increasing the cost to NZ consumers (ie syphoning money out of the NZ economy much like the banks and insurance companies have been doing at the rate of many billions per year).
English said yesterday it was possible the government may sell less than a 49 percent slice of each SOE, to allow them to raise additional capital to fund growth plans without having to seek new capital from the government.
If the additional capital comes from debt rather than equity then are we not in the same net position as a nation?
The Govt wants to spend the money on more schools and hospitals, what a waste.
The schools are empty after 3 every afternoon and all school holidays. They could have 2 shifts at most schools as they do overseas and have special classes during the school holidays. Make more use out of the assets we already have.
The Govt should make private Health insurance tax deductable then more people would take it up thereby reducing the pressure on public hospitals.
These are two suggestions but it would be too simple I think.!
School hours, you cannot be serious...shifts for children? you have a URL? besides which schools allow both parents to work....and see their children for at least the evening....
I think quite a few schools do evening teaching for adults...not sure where that income stream goes..I assume into the school.
Tax deductions...yeah right.....So those who cant afford private insurance subsidise those that can.....uh no thanks.
Not simple, biased and strange....
regards
Christchurch schools sharing sites http://www.rebuildchristchurch.co.nz/blog/2011/7/stuff-co-nz-site-shari…
You are wrong about that steven .. try south korea
Many schools in Sth Korea found it necessary to operate classes in two or even three daily shifts.
Save our economy? it cant be saved...its lifeblood is cheap energy...all you suggest is moving deck chairs about, or robbing peter to pay paul.
To start with I fail to see how giving tax deductions on private healthcare to some at the expense of those even less well off will save our economy...
Spending on public healthcare is twice as efficient in GDP terms as privatecare and there is a better outcome....So if you want to help GDP/economy take half of what is spent on private care and inject that into the public hospitals....
regards
Sounds like a Minister on the back foot really. An ideology in it's dying throes.
Anyone who has played Monopoly, knows that you're on the way down when you take the houses back off, turn the title cards over, or trade assets to survive. The only long game is to have an income stream, and this is a clique robbing those they are supposed to be representing, onbehaf of those they actually represent.
Dunne is the weak link. Watch the pressure come on him. Watch him squirm. Has to happen.
Same with many games.....but when the hand you have is all you have....and there is after all some chance the other players make terminal/bigger mistakes...well you play....of course the big palyer is Nature and finite limits.....
Dunne? why do you think he'll matter? his consituancy is my one and they are pre-dominantly National voters...so I cant see how he can be made to squirm.....
regards
Why would Dunne fold? he's 1500 votes from obscurity...he needs his seat more than anyone else I mean what other "skills" doe she have? The only reason he keeps his seat is National voters voting for him because they are encouraged not to vote for Katrian Shanks (mind you she's gormless....shocked they couldnt do better in what will be a safe National seat at some stage) ....the party vote is National there....so its a reasonable assumption that if National get hacked off with him like he causes a re-election its bye bye Dunne at the next election...
So its a death hug to Natioanl.
regards
Yes I was also shocked to read this ($723 per week) what incentive is there to ever get off the benefit? I also noted that she had a 20 month old baby since her relationship broke up 3 years ago. If so it was her lifestyle choice to have another child and then she complains that the taxpayer was not supporting her in her quest.
She said she would turn to prostitution to support herself! Unbelievable.
While Val in particular is a bit extreme they have a point, some ppl do see Welfare as a lifestyle choice....Ive met a few.....now the % is probably quite small, ...and the Q has to be asked for that small % is there any employer that would want them? cant see it.
regards
http://www.guardian.co.uk/commentisfree/2012/feb/16/suzanne-moore-disgu…
nice article on why we attack the poor rather than shot the rich. Australias richest woman, didn't discover anything, create anything or build anything. All she did was inherit it
Hey don't blame her....so she is a 'Paula Bennett wannabee'....blame the useless fatheads we have in govt on a permanent basis....they are the slobs who continue to chase after votes with promises of handouts and free pork....just ask Shearer.....he who has failed utterly to display the slightest grasp of basic economics....
Idiot, money is fungable and this money will be used for $37.5k DPB benefits, housing allowances, new cars, and kiwisaver contributions. Disregard that dividends are growing, and interest is fixed. Can our minister of Finance not even calculate NPV, or does he take us for fools? Can't blame him if he does, after all we voted them into power, because the govt we get, is the govt we deserve.
How much can you borrow if you own nothing? How much can you borrow if you own power stations, oil fields, coal mines, farmland and a host of other assets?
And more schools are not going to help the sheep think things through. They also count as a liability on the balance sheet, not an asset. They are an expense, not income. Selling assets to buy liabilities is beyond the endgame of monopoly. Once you've finished monopoly "it all goes back in the box".
These part SOE sales never were about any plan to improve NZ Government accounts. They are simply the maximum chicanery that this PM's band of Whigs thought they could get away with to grease up their toady favourites at the NZX. Brent Sheather pointed all this out to the nation in the Herald before the election : only a fool would sell an asset returning 17% to retire debt that can be had for 4%!
Ergophobia (A Real Tory)
In a way English is being honest, yes I know what you are thinking but that was not his intention!
The reason why can be found in the discovery that the divs will, post the sale, drop....as I indicated months ago. Share owners will discover they paid over the top having been the target of the broker hype and BS spin right up to the sale...."pump and dump"
The divs will dive so the SOEs can harvest the profits from higher power charges...so they can "invest" in new stuff....and in overseas adventures!.
English will slide the $100 million plus fat fee across the table to those who "marketed" the stuff...and the capital left over will mostly be wasted on the same sort of stupid makework rubbish happening right now....
It all comes back to the simple fact..this economy is an unstable crock based mostly on property speculation backed up by banks creating credit, helped along the way by a reserve bank that works for the benefit of the banks. The accommodation supplement landlord subsidy is part and parcel of the greater rort.
I sat in a regional building industry material suppliers main distribution shop complex this week in the middle of the working day for close to 2 hours....and not one person came in to buy so much as a stick of wood.
The profits plus the aasets in the totality may gone far for debt dividends I guess. Everybody is experiencing this, and this will have a greta impact for those corporate and business establishmnets in different fields of industry. In fact, a quarter of Americans have more debt than savings. And this is very true guys. A brand new study proves that one-fourth of all adult U.S. customers have more credit card debt than they have in emergency savings. According to experts, that could be a disastrous situation if a true financial emergency occurs
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