Help wanted for SOE selldowns

Treasury seeking smorgasbord of advisors for National's planned SOE selldowns

25th May 11, 11:27am by Gareth Vaughan

Treasury is seeking an array of advisors to help with the selldown of state owned enterprises, promised by the National Party should it continue to lead the Government after November's election, which is likely to be sweet music to the ears of the country's investment bankers.

Treasury's Crown Ownership Monitoring Unit today said it was seeking a commercial advisor to help with preliminary work ahead of the November 26 election, individuals to offer advice on specific aspects of the preliminary work, and firms to do scoping studies on each of the four state owned energy companies - Mighty River Power, Genesis, Meridian and Solid Energy - earmarked by National for selldowns.

National made its push for the so-called mixed ownership model for state owned power companies official in last week's Budget with the Government prepared to reduce its stakes in the four companies to as low as 51%. The Government is also looking to selldown its 76% stake in national carrier Air New Zealand.

The selldowns, through sharemarket floats giving local investors a leg up over their international counterparts, would happen over a three to five year period starting in 2012. Treasury estimated implementation of the mixed ownership model would free up between NZ$5 billion and NZ$7 billion of capital, to be put towards other areas of government spending. Asset sales of that magnitude are likely to lead to tens of millions of dollars paid out in advisors' fees to investment bankers and the big legal and accounting firms.

Touted as a way of boosting "ma and pa" retail investors' investment opportunities away from property and the collapsed finance company sector, the SOE floats are also seen as a way of kicking some life into a moribund domestic sharemarket whilst the Government still retains control of the companies listed. Analysts' at Goldman Sachs have suggested the Government selling minority stakes in SOEs could help halve the gap between New Zealand and Australia's Gross Domestic Product (GDP) per capita.

Read Treasury's statement below:

Following announcements in the 2011 Budget that the Government intends to further pursue a mixed ownership model and take that policy to the election in November 2011, the Government has instructed Treasury to undertake preparatory work on extending the mixed ownership model to Genesis, Meridian, Mighty River Power, and Solid Energy and to reduce the Crown’s majority shareholding in Air New Zealand.

The Treasury’s Crown Ownership Monitoring Unit (COMU) has established a separate team, the Commercial Transactions Group, to undertake this preliminary work.

The Commercial Transactions Group will focus on what is required to extend the mixed ownership model. It will operate separately from COMU’s normal commercial activities with other Crown owned companies. The Commercial Transactions Group will issue three separate requests for proposals (RFPs), using the Government Electronic Tender Service (GETS).

The first RFP is for a commercial advisor(s) to assist the Treasury in its preliminary work before to the general election, and is to be issued today.

The second RFP will be for individuals to provide Treasury with independent advice about selected aspects of the preliminary work, and is expected to be issued in the first half of June.

A further RFP will be issued in the second half of June, seeking firms to undertake scoping studies of each of the four state-owned energy companies.

A description of services and requirements for each of these RFPs, and for any other major services required by Treasury for this preparatory work, will be released on the GETS website: www.gets.govt.nz .

And here's Treasury's advice to the Government.

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20 Comments

by Wolly | 25th May 11, 11:53am 1306281215

Gummy Bear...you take MRP and G....I'll advise them on the other two....we want govt to pony up the loot in 2% 99 year loans to each of us...I'll advise them to flog my two to you and you tell em to flog your two to me....seems fair....and bugger the taxpayer!...then we can raise the price of power about 1% above the CPI each year....

by Gareth Vaughan | 25th May 11, 12:38pm 1306283903

Can you cut me in on some of that action too, please Wolly?

by Gummy Bear Hero | 25th May 11, 12:47pm 1306284437

Crown Ownership Monitoring Unit / Commercial Transactions Group / ......... I think I've located where the real money is ..... Getting yourself onto the board of one of Sir Humphrey Appleby's civil service subsidaries !

by Wolly | 25th May 11, 1:05pm 1306285552

No worries Gareth..what size cut can you afford!...I find it so difficult making ends meet in these days of raging inflation and permanent debasement...

by Gareth Vaughan | 25th May 11, 1:18pm 1306286303

Not a lot right now to be fair. Perhaps I could just peddle some advice in my spare time and bill for it?

by John | 25th May 11, 2:13pm 1306289585

Any chance of some action, I should be able to repay a short term loan from the cashflow of the power companies and then float it publicly and therefore get paid twice.

And thats without using options, hedging and non recourse loans.

by Gareth Vaughan | 25th May 11, 2:18pm 1306289921

Sounds like a private equity type strategy John.

by Plan B | 26th May 11, 12:45am 1306327534

Sellin our dams off will not make us rich, we already own the dams, our parents paid for them. We keep them. If we sell them we will end up with big stakes held offshore , price rises galore. And we will all be poor.

by Bernard Hickey | 30th May 11, 11:40am 1306712431

FYI from a reader via email Good morning Bernard I was interested in your comments last week on the Panel where you indicated that you were against the partial privatisation of the Power companies in particular. I share your view but wonder whether or not there is a way for the Government to realise some capital from these entities without exposing them to the danger of overseas dominance or control. Unless there is a plan to embark of some high risk expansion or implement major price increases, the value of any shares in these entities is going to be based almost entirely on the anticipated dividend streams. It therefore seems to me that each entity could issue some (listed) debenture stock securitised on 49% of company's shares with the dividends on these shares being distributed as interest. [The Constitutions could be amended to protect the the interests of these debenture-holders.] This way the Government achieves its objective of being able to pay down debt while giving "mum & dad" investors a basis for a secure investment with income tied to the performance of the company. Provided the Constitutions are robust, it also prevents any possibility of unwanted overseas control or influence. The counter to the argument that the sale of shares would yield a greater return is that any premium would be in anticipation of major investors anticipating greater influence than would otherwise be the case. The latter is what the vast majority of NZers do not want. Regards

by Bernard Hickey | 30th May 11, 11:45am 1306712710

Interesting idea.

The whole issue of preventing the leakage of ownership is a tough one.

Bonds are one idea, but they can be sold offshore too.

Convertible prefs?

Ultimately, I think you either need to not sell them to start with or bring in some form of capital controls.

cheers

Bernard

by Bernard Hickey | 30th May 11, 12:00pm 1306713627

And here's ultimately why I think selling SOEs or any New Zealand asset to foreign investors is ultimately a bad idea.

It has made us poorer in the long run.

We're sacrificing future consumption for consumption now.

See the full argument here

http://www.interest.co.nz/node/52914

cheers

Bernard

by Gummy Bear Hero | 30th May 11, 12:13pm 1306714399

Infratil / Feltcher Building / Fonterrible / Michael Hill Jeweller / ........a small snap-shot of Kiwi companies who own assets overseas , and repatriate profits back to their NZ HQ's ......

..... You seem to think that Kiwis are innocent victims of a conspiracy to take control of all our productive assets .

..... Do you want to undo globalisation , Bernard ?

Voting for NZ First this year , huh !

by steven | 30th May 11, 12:27pm 1306715237

"Do you want to undo globalisation , Bernard ?"

Peak oil will undo it for us....see I got it in finally....

;]

regards

by Gareth Vaughan | 30th May 11, 12:37pm 1306715878

GBH, Michael Hill has his HQ in Queensland these days. But you can substitute the jeweller/golfer for Mainfreight.

by Gummy Bear Hero | 30th May 11, 12:59pm 1306717151

Queensland / Queenstown ..... I get those two confused , easily done when both are so full of overhyped property investment deals , and fat real estate spruikers in loud shirts .

by meh | 30th May 11, 12:43pm 1306716226

"a small snap-shot of Kiwi companies who own assets overseas , and repatriate profits back to their NZ HQ's"

Where do these profits go next GBH? How many clip the ticket before it reaches the end shareholder and how many of those shareholders are based in NZ?

by Gummy Bear Hero | 30th May 11, 12:55pm 1306716919

Is that any different from foreign investment in NZ . We " clip the ticket " on them too . And get jobs , R & D , wages ...... yadda yadda ., before they send their profits back home .

....... Look , you're either in the real world , or you're hiding behind a Winsome Peters style fortress .

And there are many Kiwis who directly own shares locally , and abroad , and many have investment properties off-shore ..... . So much so , that Michael Cullen attempted to trap them into paying more tax through his 5 % deemed rate of return on overseas investments .

by Les Rudd | 30th May 11, 12:13pm 1306714408

Selling them for debt reduction when returns are greater than costs is lazy thinking. It raises but a drop in the ocean. As for efficiency, use facilities management contracts and get the best management groups in the world managing them. We would learn how to run such contracts, a useful skill to be leveraged elswhere in te public sector and it'd help develop our managment capability. Supplement with an energy ministry looking at future needs and investment.

by steven | 30th May 11, 12:30pm 1306715417

Ive worked both sides of the facilities amanagement fence, its a failure...the only way it works out cheaper is if the incumbant is seriously in-efficient...and there is no sign of that in the SOE model or real world.

Such FMs have ahd NZ manager son teh ground here for at least 15 years....plenty of experience....little gains.

regards

by Gareth Vaughan | 7th Jun 11, 10:45am 1307400339

The investment bankers & brokers are, unsurprisingly, queuing up for the first of these gigs. The big boys are coming in from overseas like Morgan Stanley and Rothschild, with the latter teaming up with Cameron Partners. And Merrill Lynch has apparently got into bed with Forsyth Barr in pursuit of the gig. All the locally based players like UBS, Goldman Sachs, First NZ Capital, and Deutsche Bank have also thrown their hats in the ring.