Asset sales bill passes into law

Law allowing for partial sale of SOEs Mighty River Power, Genesis Energy, Meridian Energy, Solid Energy passed in Parliament

26th Jun 12, 5:06pm by Alex Tarrant

The law allowing the partial sale of Mighty River Power, Genesis Energy, Meridian Energy and Solid Energy was passed in Parliament on Tuesday afternoon after government and opposition MPs had one final chance to debate the Public Finance (Mixed Ownership Model) Amendment Bill.

The government is set to sell up to 49% of those four energy companies, as well as sell down its three-quarter stake in Air New Zealand to no less than 51% in a bid to raise NZ$5-7 billion over the next five years.

The money raised from the share sales would be spent on new capital expenditure, with a NZ$250 million upgrade to KiwiRail's network first in the gun. Other spending commitments already made include NZ$1 billion on school upgrades and NZ$400 million for co-investment in irrigation schemes.

Mighty River Power is set to be the first energy company to be partially privatised before the end of September. Genesis or Meridian are set to be second (with the other third), and Solid Energy fourth.

Earlier on Tuesday Prime Minister John Key said the government would make it as easy as possible for New Zealanders to buy shares sold in the companies. Meanwhile, Finance Minister Bill English said while it was unlikely share parcels would be held back for Treaty of Waitangi settlements, that scenario was possible.

Minister for State Owned Enterprises Tony Ryall kicked off debate during the third reading on the Bills (see video below), which also included the State-Owned Enterprises Amendment Bill.

Both bills passed by 61 votes to 60 - National (59 votes), ACT (1 vote) and UnitedFuture (1 vote) voted in favour of the bill. Labour (34 votes), the Greens (14 votes), New Zealand First (8 votes), the Maori Party (3 votes), and the Mana Party (1 vote) voted against the bills.

Ryall's office put out this release on the bills:

A bill enabling the Government to offer New Zealanders minority shares in four energy SOEs has passed its third and final reading in Parliament today.

“This is part of the National Government’s wider economic plan to control debt and keep investing in our economy,” State Owned Enterprises Minister Tony Ryall says.

“Ministers will make a decision in due course whether to proceed with the sale aiming to commence the offer in the third quarter of 2012, market conditions allowing.

“Commercial work on the Initial Public Offer has been underway for some time including the process for selecting a retail syndicate – usually brokers and/or banks - which will be tasked with marketing and selling the offer to every day New Zealanders. The syndicate will support the Government’s goal to make it as easy as possible for New Zealanders to take part.

“We expect strong New Zealand interest. Current international economic uncertainty may see more interest in the government share offers as local investors stay home rather than invest overseas, and as they look to invest in known infrastructure businesses such as the electricity sector.

“The National Government has been upfront about its plans to offer New Zealanders minority shareholdings in government owned businesses, as part of a wider plan to protect and grow the New Zealand economy.

“We took that clear plan to the country and New Zealanders voted for us in overwhelming numbers.

“The share offers will help to control debt, increase opportunities for New Zealanders to save, and deepen capital markets.

“And, over the next 3 to 5 years the around $6 billion in proceeds from these share offers will pay for essential new public assets like modern schools and hospitals through a new Future Investments Fund – that is $6 billion we would otherwise have had to borrow from overseas lenders and pay significant interest on. That is $6 billion off our national debt.

“We have strict ownership limits and these are now enshrined in legislation. The government will retain at least 51 per cent control and there will be a 10 per cent share cap on all other investors. We have also set a target of 85-90 per cent New Zealand ownership at the time of the offer.

New Zealanders wanting more information can visit the website: www.governmentshareoffers.govt.nz

Labour Party Leader David Shearer responded (see video at top of story). Other speakers included Green Party co-leader Russel Norman and New Zealand First Leader Winston Peters.

Winston Peters:

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49 Comments

by Kunst | 26th Jun 12, 6:05pm 1340690704

Time for changes !

The NZpolitical landscape changed. Since the leadership of J. Key democratic processes, honesty and integrity in this country are abused. The government divorced from the NZpublic.

by Boatman | 26th Jun 12, 6:38pm 1340692722

Excellent news! John Key must just stay the course now and not be distracted by leftwing rabble rousers.

Governments have no business running Companies , they should govern the country, nothing else

These entities should be 100% sold off to investors

by deepred | 27th Jun 12, 12:57am 1340715451

"These entities should be 100% sold off to investors"

Like JP Morgan and the Madoffs?

by midgetkiwi | 27th Jun 12, 11:18am 1340752706

I love how to "stay the course" is a good thing in your eyes... just looks to be getting worse to me. This morning...

http://www.stuff.co.nz/business/industries/7177553/70-jobs-lost-as-Auckland-factory-closes

Wonder if this trend is going to affect price of wool?

by Boatman | 27th Jun 12, 12:04pm 1340755482

This is a one off . NZ factories are being gutted by the strong NZ$, nothing to do with sale of assets

by midgetkiwi | 27th Jun 12, 1:30pm 1340760646

Bit off topic I know, but only looking at everything one small issue at a time. I wouldn't say it is a one-off, as there have been a number of manufacturers being gutted as you put it by the strong NZ$. To say it has nothing to do with how our current government is doing is short-sighted at best or possibly strongly biased? Sale of assets is apparently to reduce future borrowing for more infrastructure projects (not paying down debt anymore :). Now why would we have to borrow more? could it be reduced revenue? if factories are being gutted by a strong $, won't we have to borrow even more? Just a comment as to why to "stay the course" may be a bad idea becoming worse.

by goNZ | 26th Jun 12, 7:46pm 1340696764

Margaret Thatcher :

“ the trouble with socialism is that you eventually run out of other people's money";

by Plan B | 27th Jun 12, 9:49am 1340747361

Unfortunately Margaret ran out of common sense and school playing fields to sell off*.

A very foolish woman in many ways.

To be replaced by an even more foolish man- John Major.

*Margaret sold off the UK school playing fields- I would vote for that! An excellent idea. You can see the result in the UK. Half the British Olympic team went to Public school- less than 7% of the population provided half the team.

by Boatman | 27th Jun 12, 12:16pm 1340756185

"Half the british Olympic team went to Public Schools" . This Stat would apply to many nations who dont have egalitarian societies like NZ

Anyway most Poms with get up and go , got up and left England years ago , leaving behind the Landed Gentry and the dumb peasants.

Those with Get up and Go , came here to NZ , and went to OZ , Canada , the US , South Africa ETC

by steven | 27th Jun 12, 10:27am 1340749676

Funny how you quote her, but ignore what she says on AGW.

regards

by Boatman | 27th Jun 12, 12:05pm 1340755513

So true

by Andrew R | 26th Jun 12, 8:21pm 1340698917

More economic treachery from the government.

by Kate | 26th Jun 12, 8:33pm 1340699638

TV1s business reporter tonight suggested that the Government will not want the share price to plummet following this partial privatisation (referred to it as a 'Facebook effect', or something similar).

I can see flaws in terms of the mixed ownership model as the Government seeks to influence operational decisions to keep share price at or above the initial float price. Can't see how this is going to do anything positive for security of supply - quite the opposite, I suspect.

by steven | 27th Jun 12, 10:31am 1340749905

Well this suggests it will be significantly over-priced.

I cant see how operationally they can effect the share price......if they removed all regulation, sure.....they'd be voted off the planet when ppl saw the power bils of course....

regards

by Kate | 27th Jun 12, 1:17pm 1340759831

The 51% shareholder will have control of the Board - in addition to control of the country. Able to effect share price for example through ensuring that every proposal for new generation passes through the EPA where central government appoints commissioners.

Whether such proposals ever get built is another matter - but as with minerals - simply the granting of exploratory permits effects share price - with generation projects, the granting of consent will have the same effect. This seems to be the case even now - as most generators are busy staking claims for windfarms to be located at various sites all over the coutnry for facilities that appear to have questionable ROIs.

The other thing that a government might do to maintain/improve share price is reduce its emphasis on energy conservation initiatives/subsidies. It might also look less favourably on any kind of homegen 'feed in' promotion. At present, only MRP offer a 1:1 retail price for homegen feed-in to the grid - and I can see that going out the window with this partial privatisation.

by meh | 26th Jun 12, 11:17pm 1340709424

"That is $6 billion off our national debt." Ah, no it's not unless it's used to repay existing debt.

by Mark Hubbard | 27th Jun 12, 8:27am 1340742429

For the record, A Tale of Two Dividends: Asset Sales. And all the rot being emoted over this.

by stp | 27th Jun 12, 8:50am 1340743807

This is result of truncated democracy: ~80% population does not want to sell, 61/60 voted to sell...we deserved it....it is like a stealing from us all - already paid by taxes....maybe we need to report to the police....

by Uninterested | 27th Jun 12, 9:12am 1340745161

Given that this sell off is going to happen, I think that everyone, even those who are against the sale should have been saving up for the last year or so in order to preserve their position: to buy some of these shares. It wouldn't have taken much of a sacrifice to save up the minimum share price over the course of a year. But for those who did not, it is now too late to save up for the MRP one.

by Plan B | 27th Jun 12, 9:53am 1340747611

Even if only New Zealanders purchased the shares you will end up with 100,000 people owning something that used to be owned by over 4 million people. This is an enclosure of the commons. Taking what is owned by all, our lakes, rivers, dams and handing them to a few people for money. These dams are simply not replaceable. They are not simple companies they are really a monopoly on the use of many rivers, lakes, mountains and huge amounts of water.

by steven | 27th Jun 12, 10:33am 1340750015

There will be a lot of hype and get rich speculation....when the dust has settled if the P/E makes sense then buying makes sense....anything else is blind gamble.

regards

by powerdownkiwi | 27th Jun 12, 2:14pm 1340763279

Ivan - kilowatts? Think.

Short enough?

How many kilowatts needed to replace the fuel needed tho shift just rubbish, just in the urban situation?

Nuts. Why do peolpe not think it through?

by powerdownkiwi | 27th Jun 12, 2:35pm 1340764526

You miss the point. French trucks are nuclear trucks - it's where their electricity comes from. In Australia, they'd be coal trucks, that's where their electricity comes from. Globally, coal accounts for 42% of electricity, and rising. That makes them globally 42% coal trucks. Coal is a fossil rresource.

There are some economies of scale re single large generation plants and the efficiencies of electric motors, but they are lost via batteries (build and charging and weight carried). BAU it is not.

The better approach is to aim for zero waste - which wouldn't need the trucks.

Thinking is good.

Good luck with the nose - good practice for being bled dry.

by steven | 27th Jun 12, 2:42pm 1340764974

I did and it doesnt add up. Try www.earthship.org.....hardly any water in needed, for kapiti with water meters coming a great idea....deal with human waste "inhouse" use it as fertilizer.....look at other waste so its got rid of on the property....then these trucks might make sense for whats left, say recycling collection of plastic and paper which are bulky and light..

regards

by steven | 27th Jun 12, 2:36pm 1340764615

Ivan, there is a huge difference between a garbage truck collecting fairly light weight "picking up rubbish from public litter bins" over a short distance, say a 2~3 tonner and a 35tonner over long distance, or even a real garbage truck for that matter....12tonnes?

Oh and try that with electric tractors say, or combine harvesters....etc etc....

Instead of course you spout rubbish you ahve no understanding of.

regards

by Muppet King | 27th Jun 12, 2:44pm 1340765060

I don't know about you guys but I'm going to throw a lazy 10K at these sales

by Muppet King | 27th Jun 12, 3:04pm 1340766283

Just watch the PE ratios, around 14-17 and I'm in. It's known in the finance industry that the MRP will be the best priced, as it will determine how the other sales go, hence the holding incentives.

by steven | 27th Jun 12, 3:56pm 1340769365

I sold all my shares 2 years ago as I expect a severe fall....still waiting of course....

There will be a time to buy, not today though......IMHO. If I had $10k spare I'd look at solar water heating and a heat pump myself or maybe a wetback, assuming you have insulated your home already.

regards

by Muppet King | 27th Jun 12, 4:35pm 1340771706

I reckon that drop is going to come when the dow hits 13,000 again eventually, when the world is plunged into chaos because of the banking crisis in Europe.

by powerdownkiwi | 27th Jun 12, 3:29pm 1340767774

Ivan - how I envy your spelcheking skills. I expect you're an expert.

by Waripori | 27th Jun 12, 10:23am 1340749383

What ever else you want to say about this Government you cant say they dont do what they say they are going to, and you cant say they dont tell the people what they will do ( class sizes excepted as I dont recall that being a biggie in the election campaign ).

We are a long way from the days when parties campaigned on one thing and then governed completely differently. National made the partial privatisation a central plank of their policy and they got elected.

That is how democracy is supposed to work isn't it?

by meh | 27th Jun 12, 10:26am 1340749609

Would work that way if the masses were informed/educated and we had real leaders to choose from. Doesn't work if the main reason if the main goal is not to let a worse party gain power ie, picking the best of a bad bunch.

by Waripori | 27th Jun 12, 10:34am 1340750095

It's a free country. Anyone can get involved and join a party.

Democracy certainly has its problems and I can think of a few people I dont think deserve a vote. They probably think the same thing about me.

Maybe we should have a Monarchy? King Winston?

by 2 Tooth Bora | 27th Jun 12, 10:34am 1340750097

A basic human strategic assets need to stay in trust for all Aotearoas people, not a few.

Key can't guarantee what happens to 49% of the shares once sold (which Kiwis will be paying twice for).

NZ Government should retain the asset but lease the management for 15 years (just like China does with their Dairy industry)

Once sold we will never get it back.

by Don m | 27th Jun 12, 3:48pm 1340768895

Snippy..Youare just like John Campbell(TV3)

John Key to John Campbell last night

“With the greatest of respect to your financial literacy, you are proving you don’t actually have any.”

pure gold from John Key

National got voted in on partial asset sales..get over it

You never owned the power companies..ok?..i mean did you recieve an annual report? no..Did you vote at shareholder meetings..? no.Could you sell your share and invest in another venture..? no...thesame failed logic you spout would mean that you personally owe a portion of the $300m /week crown borrowing as well..

As for the Kiwis who "can hardly keep body and soul together" I dont want these people owning my power company anyway.They are the people who will sell shares (maybe overseas when they have made a lazy$100 or if they are about to default on their mortgage)

I want the companies owned by retired people who need an income better than the banks can give them but not with the risk of finance companies.

I want power companies owned by kiwisaver funds (investing here instead in Aussie energy shares.

As for "hipocrits" most of those polititions who voted against the sell off would fall into that category..

regards

by Chris_J | 27th Jun 12, 7:27pm 1340782039

Continuing with the theme of inadequate literacy (and misspelling!) .... perhaps John Key's performance on Campbo's show could be likened to that of a "hippocrat" as apart from the rotundness (he's still getting advice from Gerry as to how to acheive that!) his performance invoked thoughts of an immovable grey autocrat ready to bite the head of anything that entered his muddy pool.

I would say John Key's outburst actually demonstrates his lack of financial acumen.

Firstly Telecom was privatised in 1990, NZ Rail in 1993 and Contact Energy in 1999, John Key claimed interest rates were 20% during some of that period - of course that is completely untrue (rates were that high for 2 yr Government Bonds only briefly in 1987) for only 1990 and early 1991 were 1 year Government bond rates above 10% and they have never been again since.

Secondly John Key dismissed the fact that substantial dividends were earned over the period. I'm not sure of exact numbers but Campbo claimed that $7b of asset sales had produced $20b in dividends.

Now some of those sales were as late as 1999 but assuming the total sales had occurred way back in 1990 then the $7b in sales would have only saved a total of $16b based on borrowing the money at the 1 year NZ Govt Bond Rate (after tax so as to be comparable to the dividends paid).

So if the assets hadn't been sold the Govt would have the $20b in dividends plus the current value of the assets (I'm not sure of which assets are included in the list but Contact and Telecom alone are $8b today, so I'll assume at least that as the total).

Now those dividends were earned in the past so that the present value of those assets is significantly higher than the $20b.

So if the Govt had held the assets: the present value of the dividend income earned plus the current market value of the assets would well exceed $30b, but John Key asserts that anyone who doesn't understand that a present value of $16b acheived from the sales is a better result!

And that was from the sale of some dud assets, and not just prime energy assets that essentially "tax" citizens.

Now finally the current argument to sell into a weak equities market when the long term interest rates are at record lows, proves Key's lack of financial literacy.

by notaneconomist | 28th Jun 12, 5:02pm 1340859760

Chris_J - The only thing people can do is buy some of these shares and hopefully get a reasonable dividend off them and maybe this will offset the cost of the power they consume.

I'm starting to think the Govt is like the old corporate raider - when business gets into strife the step in spend a bit, sit back and wait then sell some of it off realising their profit. The thing is the Government sets all the conditions like tax rates, levies, fees, and a plethora of other costs which business has to comply with then they set whole lot of other parameters which have financial implications which can distort the markets and all at the tax payers expense. It's called playing monopoly with the tax payers as bankers.

by steven | 28th Jun 12, 11:08am 1340838501

"owned by retired people" huh? what makes you think retired ppl wont sell for "a lazy$100"?

Lets see OAP, limited life left, get in buy shares "cheap" sell high, make a "killing" have a one off well deserved holiday.

or me for instance and especially GBH, buy shares long term for the dividends....because "financial planners and life insurance companies are a bunch of in-comp. thieves.......

Retired ppl and shares, OMG you can lose money as fast in the share market legally with no financial sector fraud in sight. As an example just look at say Contact in the last 2 years, I sold at 6.23....today down to 4.78....something like 25% loss if I had kept them....of course I was late selling, they were up towards $8.20.... :/

Kiwisaver funds should be going for the best return, if thats OZ that is fine by me...wont last of course....

regards

by steven | 28th Jun 12, 12:11pm 1340842281

I dont think thats what I said or really meant to....but the potential is there....the Facebook IPO should be a clear warning....but I think greed will overcome.....if a deal is too good to be true, it usually is especially Ive found that to be true in NZ.

For myself I wont be going near the SOE's sales. Now in the future, when the share prices are stable and the P/E looks fair and reasonable yes I will buy Meridian at least as they are pretty Green, I will keep an eye open.......I wont be buying Air NZ ever....they are a dodo....

regards

by pwilkie | 28th Jun 12, 4:47pm 1340858862

meridian management might want to lift it,s game a tad if it,s going to encourage investor confidence--losing $65+ k a week for the last 13 years isn,t a good endorsement of management competence---$44 + million and counting

http://www.stuff.co.nz/the-press/business/7175845/Meridian-exits-stake-in-company

by goNZ | 28th Jun 12, 3:43pm 1340854980

"pentioners" !! the speling on this whebsite is trully oarfull....

by vavau.to | 27th Jun 12, 1:02pm 1340758969

the point is that the benefit was not proven. the cost to the government will be the loss of the next election. therefore why did they do it ? seems such a hight price to pay for no proven benefit. If key was smart he would have backed down and won another election. To late now!!

by midgetkiwi | 27th Jun 12, 1:32pm 1340760779

Ah, but you assume that another term in government is worth more to our prime minister than any personal unseen gain that he may make from asset sales. Could the opposite be true? Makes sense then maybe?

by Waripori | 27th Jun 12, 3:42pm 1340768521

One comforting thing about having a PM with substantial personal wealth is that he is highly unlikely to be in the job for personal gain.

If he was interested in increasing his own fortune he would be in a different job.

by Kunst | 27th Jun 12, 4:31pm 1340771510

I’m sure lot’s of NZsheep believe your statement.

by moa man | 27th Jun 12, 8:25pm 1340785504

That depends on how you define wealth, wealth is not just dollars in the Bank.

Influence, and the ability to control others via making policy, is the currency of choice for those that already have enough dollars to meet thier personal needs / wants.

by steven | 28th Jun 12, 11:47am 1340840861

Sir John Key will sound good to him Im sure.....thing about neuvo-riche, the thing they lack is a title and access to that stratosphere long term.

regards

by Christov | 27th Jun 12, 4:27pm 1340771249

With respect Waipori that is a little naive.....He is in the box seat to create an environment to maximise his personal wealth beyond the tenure of his present job.

Don. M. while snippy may need a little share trading refresher, I think your in need of a 101 in political doublespeak...last night Key looked the arrogant prat he is, not because he couldn't answer "the question" but because he wouldn't answer the question.

The doubletalk...? What is the first charter of a Corporate...? To maximise profits back to the shareholder.....( nothing wrong in that)

However, much of the rush by Mom n Pop to aquire these shares will be through managed funds such as Kiwi saver and not directly as a chosen portfolio by Mom n Pop, Key will say see we have fulfilled our promise.

Now then you will have to consider two distinct possibilities here....

1. Mom n Pop will enjoy the benifits of owning shares in the power companies while giving some of it back through increases in cost of supply...refer to 1st law of charter, futher the fund managers will have a nice chunk, and so on.

2. a wylie way of socialising losses through collapse of share values in the future.

Key repeated on at least three occassions why would Mom N Pop want their managed funds to continue investing on the Australian index....uh duh...! hello..! hello John..anyone home in there...?did you just not say Cambell had no financial literacy...? uhhhhh duh..!

By Keys own words he chose to hold up Air N.Z. as a success story on the share market basis......well I don't know about you, but it's been a bloody disaster for truckloads of investors.....so I guess he really does believe he can tell em anything as long as they don't scrutinize the message.

by Alter Ego | 27th Jun 12, 8:06pm 1340784413

Funny what you find......I had no hand in this.

Tis off track, and off Key...like a certain Rail company everyone should rail about.

It is not Friday...but may be worth a laugh....but not 50p.

Save ah souls...this chappie thinks....not...

Flag it is ye like......Flip if ye don't. Been checked for a virus..

However, may go viral. (Over to you).

http://www.trademe.co.nz/antiques-collectables/flags/auction-488492765.htm