Selling Mighty River shares was bad enough: $66m taxpayer dollars spent on selling shares with a dividend yield of 6% (the total shareholder return for the Crown last year was 11%) to avoid borrowing at 4% . That’s spending money to lose money. Not crazy enough, apparently. For the Meridian sale, they’ve doubled down. The cost will be $100m and they’ll be selling shares with a dividend yield of 8%.
Who in their right mind sells a high-return asset to avoid low-cost debt? More than that, who spends $100m to sell a strategic piece of your economy’s infrastructure that’s ALSO a high-return asset to avoid low-cost debt.
There’s stuff that the Right and the Left disagree about honestly and for legitimate reasons. Then, there’s just burning money for the hell of it.
As National’s political situation around asset sales gets more and more dire, they’re throwing any last vestiges of economic logic to the wind. The crazy cost of the sale ($60m of which is the cost of the ‘buy now, pay later’ scheme) and the ultra-low price of the shares (which translates to the very high dividend yield) is all about National scrambling to get ‘mum and dad’ to buy Meridian shares.
Understandably, there’s some reluctance on the part of those who bought Mighty River shares and have lost 13% of the their investment so far to drink National’s kool-aid again, and nobody who watched what happened to those suckers wants to repeat their mistake.
National needs as many people as possible to buy Meridian shares. Each sale was meant to get around quarter of a million buyers. Mighty River didn’t even manage half of that. Bill English only talks about ‘tens of thousands’ of buyers for Meridian. And to get even that, the Nats know they have to make the offer ridiculously sweet. That selling the shares at fire sale prices and, on top of that, wasting millions of taxpayer dollars on gifts to wealthy share buyer on top.
The sane thing to do would be just stopping the sales and putting all that money and effort into actually running the economy. But those insanity peppers make you do some crazy things.
What about the argument that we simply mustn’t borrow the money to fund this capital investments, so selling off high-yielding strategic assets is the only alternative.
Well, look at it this way: The asset sales will raise $5 billion if they’re lucky (minus quarter of a billion costs). That’s just over 2% of GDP. National has borrowed $50 billion in five years. The Crown’s gross debt stands at $80 billion. The asset sales proceeds are really neither here nor there when it comes to the Crown’s gross debt level. And it doesn’t improve Crown’s net worth at all – in fact, it gets worse.