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BusinessDesk: Finance Minister English flags two part privatisations for 2013 following Mighty River sale, Treasury hui notes show

BusinessDesk: Finance Minister English flags two part privatisations for 2013 following Mighty River sale, Treasury hui notes show

By Paul McBeth

The sale of shares in state-owned electricity generator and retailer MightyRiverPower is likely to attract more buyers than available stock when it’s floated later this year, and the government is eyeing up two more sales next year, according to Finance Minister Bill English.

During the consultation hui with Maori leaders, English tried to allay fears the 10 percent cap on individual shareholdings and prospect of oversubscriptions may squeeze out iwi investors, saying the technical details of the float haven’t been developed, but shares will be available on the open market in a report from a Christchurch hui on Feb. 14.

“The first float is likely to be oversubscribed but kiwi investors will be at the front of the queue,” English said.

The notes report English as saying the MRP sale flagged for the third quarter of this year will be followed by “two more next year.” Two other electricity SOEs, Genesis and Meridian, are the next most likely candidates for partial privatisation, with both coalminer Solid Energy and national airline Air New Zealand potentially further off.

The government is looking to raise as much as $7 billion by selling minority stakes in state-owned energy companies and the national carrier Air New Zealand.

The hui notes were part of a dump of mixed ownership model documents from the Treasury, released just before the long Easter weekend. That includes Treasury advice on Sept. 29 last year that Treaty of Waitangi obligations could threaten valuations of the floats by creating uncertainty for investors, and that retaining a provision preventing the companies from acting in a manner contrary to the Treaty was inconsistent to aligning the energy firms to other listed entities.

The government ultimately drafted legislation to deal with this concern by transferring existing clauses in the State Owned Enterprises Act relating to Crown obligations to Maori under the Treaty, making it explicit that grievances wouldn’t apply to private shareholders.

The documents also rule out special favours for Maori investors, with English and SOE Minister Tony Ryall saying they made it clear “Maori will not be given access to shares at a concessional price” and if shares were to be used as part of a settlement, the Crown would probably have to buy them on-market, according to a Feb. 28 Cabinet paper.

In the same paper, English and Ryall knocked back a push by the Office of the Ombudsman to keep the companies subject to the Ombudsmen and Official Information Acts, saying “commercial entities operating in a competitive environment” face the best remedy from consumers who can shift their business to a different provider.

“The risk of losing customers provides strong incentives for the companies to be client-focused, and the risk of losing or disappointing shareholders and facing a falling share price incentivises the companies to operate efficiently,” the paper said.

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Still no real explanation why we are selling these assets. Still no apparent recognition of the double hit to the NZ economy when they are eventually sold off shore- in the loss of all future dividends; and in yet another upwards hit to the exchange rate and its consequences of significant damage to NZ industry.

And apparently if the shares are to be used for Treaty Settlements, the Government will first sell the shares, and then buy them back at a premium. Its very hard to see that as prudent financial management.

Still no logic behind the valuations for us to check whether the proposed sale prices are fire sales or not. E.g. what are some EBITDA multiples for similar power companies overseas, and how do they compare?.