Government introduces SOE float legislation; aiming for September quarter float of Mighty River Power

By Bernard Hickey and Alex Tarrant

State Owned Enterprises Minister Tony Ryall has announced the Government would today introduce legislation to enable the partial sale and stock market floats of Mighty River Power, Genesis Energy, Meridian Energy, and Solid Energy, and the sale of more shares in Air New Zealand.

The government reiterated it planned to sell up to a 49% stake in Mighty River Power in the third quarter this year. Ryall said the government had not yet considered which company would be second off the rank.

However it might be some time until the government could sell more Air New Zealand shares, as it is seeking further advice on the sale of its 73% stake to no lower than 51%. Air New Zealand currently has a 10% ownership cap for foreign investors and a 20% ownership cap on any domestic investor apart from the government, Ryall said.

The government was looking to bring that local investor cap down to 10% so it was in line with the legislation not allowing any investor other than itself to own more than 10% of the four power companies. The next biggest investor in Air New Zealand below the government owned about 3% of the company, Ryall said, meaning the new cap would not force any investor to divest holdings in the company.

The legislation would come as an amendment to the Public Finance Act, and would not include a specific social responsibility clause like one in the State Owned Enterprices Act, Ryall said.

"Like most companies listed on the New Zealand Stock Exchange, the mixed ownership companies will build stakeholder trust and public support for their activities in a number of ways, one of which could be a statement of corporate social reponsibility," Ryall said.

The legislation would contain reference to the Treaty of Waitangi, but Section 9 of the SOE Act, which stipulates the government as owner of SOEs must act within the principals of the Treaty, would be replaced by a new section in the Public Finance Act.

The Section 9 wording would be altered in the new Part 5A of the Public Finance Act to read: Nothing in the Part shall permit the Crown to act in a manner that is inconsistent with the principles of the Treaty of Waitangi. For the avoidance of doube, [this] does not apply to persons other than the Crown.

That means the Crown as majority shareholder would be bound to act in ways consistent with the Treaty, while private investors holding minority interests would not.

"The Government will today introduce legislation supporting its mixed ownership programme, which will help get on top of debt and pay for priority new public assets like modern schools and hospitals," Ryall said.

(Updates with Air NZ info)

Here is the rest of his statement:

Minister for State Owned Enterprises Tony Ryall is introducing the new legislation and confirmed the Government is aiming to undertake the first initial public offering – for Mighty River Power – around the third quarter of this year.

“The rationale for the government share offers for Mighty River Power, Genesis, Meridian, Solid Energy and Air New Zealand is very clear,” Mr Ryall said.

"We must not get into the kind of debt trap the UK and Europe are in."

"The $5 billion to $7 billion we expect to free up by these partial share floats will go into the Future Investment Fund to build priority assets like schools, hospitals and infrastructure.

"The alternative is a lot more debt that we'd have to borrow on fragile foreign markets at a time when many other countries are struggling under too much debt.

"The public share offer of less than 3 per cent of the Government's assets is part of the larger programme to manage New Zealand through and out of the global financial crisis."

The legislation will require the Crown to hold at least 51 per cent of the voting shareholding in each of the mixed ownership energy companies, and restricts other shareholders from holding more than 10 per cent of the voting rights.

"Before making decisions about Air New Zealand, the Government is seeking further commercial advice on implementing its policy, because of the greater complexity around Air New Zealand's existing shareholding," said Mr Ryall.

The Government is also taking a number of other decisions to align the MOM companies in legislation with other listed companies on the New Zealand Stock Exchange.

Ministerial decisions as majority owners of the four mixed ownership energy companies will remain subject to the Official Information Act and departments will remain subject to the Official Information Act and Ombudsmen Act. However the companies themselves will be excluded – as already happens with Air New Zealand.

"The mixed ownership companies operate in a competitive environment, and, once listed, will have comprehensive continuous disclosure requirements under stock exchange rules," said Finance Minister Bill English.

"Customers have contractual and consumer law remedies available to them, as well as the ability to take their business to a competitor – the same rules applying to their private sector competitors."

Corporate responsibility objectives in the SOE Act will not be included in the new legislation. Like most large commercial entities, the mixed ownership companies will continue to build stakeholder trust and public support for their activities in a number of ways, including through their corporate social responsibility polices.

Through an amendment to the Public Finance Act, the legislation will also replicate section 9 from the State Owned Enterprises Act. The SOE Act will retain section 9.

“During consultation hui last month, Maori conveyed a clear view that section 9 should be retained in the new legislation," said Finance Minister Bill English.

Section 9, will be replicated in a new Part 5A of the Public Finance Act, with clarification that private shareholders are not affected.

It reads: “Nothing in this Part shall permit the Crown to act in a manner that is inconsistent with the principles of the Treaty of Waitangi. For the avoidance of doubt, [this] does not apply to persons other than the Crown.”

Section 27A-D will be replicated in the new legislation to protect Maori interests in memorialised land owned by the mixed ownership model companies.

“We entered this process with an open mind," Mr English said. "Replicating section 9 into the new legislation ensures we can proceed with the mixed ownership programme without prejudicing the rights of Maori or the Crown’s ability to settle future Treaty claims.”

The Government received 208 written submissions through the consultation hui.

The legislation will be introduced today and will receive its first reading on Thursday, when it will be referred to the finance and expenditure select committee.