How low will they go?

Written By: - Date published: 11:53 am, February 20th, 2012 - 11 comments
Categories: privatisation - Tags:

The Nats are looking to Queensland for lessons in privatisation. They want to see how incentives for locals to hold on to their shares work. But you don’t pay for incentives with magic beans. Any incentives for the few locals who can afford to buy shares just means a diminished return to the government, making the economic and fiscal rationale for selling even weaker.

When Queensland sold its railways in 2010, they offered shares to locals at $2.45 compared to $2.55 for institutional buyers – a 4% discount for ‘mum and dad’ investors. Now, say National did the same and half the shares they sold went to ‘mum and dad’ (not most mums and dads, of course, the mums and dads with a few spare G laying around). A 4% discount on half of $5.2 billion (the book value of the shares to be sold, note the difference from English’s $6 billion “guess”). Well, there’s $100 million down the drain just there.

Then, the Queensland government told locals that they would get one bonus share for every 15 they own if they held on to them for a year – a 6% bonus. That’s $150 million.

Just those two incentives, which, at best would see a few hundred thousand wealthy Kiwis own shares for a year and a day, could cost a quarter of a billion dollars. I didn’t see that number in English’s dodgy sums last week.

After the Queensland government sold the 60% stake in QR National, the shares rapidly appreciated in a matter of months from $2.45/$2.55 at launch to around $3.50. That was hailed as a ‘win-win’ but common sense tells you it was still the same company before the sale and a few months later, just the float price was 30% below true value.

The Nats will very likely go for a low price on the initial share float, too. They will view it as politically important to have a well-oversubscribed float with lots of ‘mum and dad’ wannabe buyers (‘see, everyone loves privatisation, we can’t sell enough of these shares!’), which means s float price well below the market clearing price. Loss for you and me as owners of public assets – slight political point for National. Cost: $1.5 billion if the float price is 30% under market price.

And when the value of the government’s 51% climbs as the shares go to their true value, the Nats can claim to have made a profit thanks to the ‘efficiencies of mixed ownership model’, when all they’ve really done is sell the other 49% too cheap.

So, if National imitates Queensland’s sale ‘incentives’ it could wipe $1.75 billion off the net proceeds of the sales. That’s $3.5 billion the government would actually get to bank at the end of the process. Maybe that’s why Treasury has only let National book $3.86 billion in sales revenue in the Budget documents, not the $6 billion that English made up last week (check it out in the PREFU p91, they call it ‘balancesheet funding’).

Is $3.5 billion net a good price for 49% of our energy companies and a hunk of Air New Zealand that, combined, returned $2.1 billion in dividends to the taxpayer in the last six years, not to mention retained profits?

Doesn’t seem like it from here. Which raises a question: what is the minimum net return that National is prepared to sell for? Is there one? Or are they determined to sell our assets no matter what because this is about ideology, not good government?

11 comments on “How low will they go?”

  1. lprent 1

    The more you look at National’s asset sales strategy, the harder it is to see any reason for it apart from simple minded ideological stupidity.

  2. Kotahi Tane Huna 2

    What about money? The Pengxin donation shows us that they are well paid for their services, and I’m sure there will be finance company and other directorships up for grabs later.

    Speaking of the Pengxin donation, and given the widely-accepted fact of CCP cheap loans and links to property development companies, to what extent can the National Party be said to be financed by a foreign government?

  3. vto 3


    With Crafar, asset sales and now ACC privatisation …..

    They are entirely like the emperor with no clothes just before he was sprung.

  4. Draco T Bastard 4

    Or are they determined to sell our assets no matter what because this is about ideology, not good government?

    They’ll sell our assets no matter what and it’s not even about ideology – it’s about transferring the communities wealth into the hands of the rich and making all the rest of us serfs.

  5. felix 5

    “Which raises a question: what is the minimum net return that National is prepared to sell for? Is there one? Or are they determined to sell our assets no matter what because this is about ideology, not good government?”

    John Key was asked that very question in the house last week. His answer was that it’s good for NZ to sell the assets regardless of the price.

    Entirely ideological, stated very clearly.

    ps I’ll find the video in a minute cos some dweeb (hi Gos) is sure to question the precise wording.

    • felix 5.1

      Here ’tis:

      The money shot is at 2:30, but the whole thing is worth a look if you enjoy that softly pathetic and unconvincing “feigned innocence” look that John Key gets when he’s lying through his teeth.

      David Shearer: Is there a bottom line below which he would not sell our profitable assets; if so, what is that bottom line?

      Rt Hon JOHN KEY: The bottom line is that it has got to be the right thing for New Zealand, and it is.

      And that’s that. Pure ideology, no bottom price.

      • aerobubble 5.1.1

        Key does not believe that NZ has any significant National sovereignty at stake. Why would he, the banking system is already overwhelmingly foreign owned? Even the Government banks with a foreign owned bank. We’re already serfs…

        • marsman

          Well, we need to fight to slough off this serfdom and we need to fight with everything at our disposal to prevent the thieving Nact parasites from selling OUR State Assets.

      • Bored 5.1.2

        Has anybody cared to think this thing through with regard to our position as a client of the international banking system?

        The Nats have chosen to give 4 years worth of tax cuts that have since inception NEVER been revenue neutral. They have created a debt level as a consequence that places the NZ citizens at the mercy of these offshore banks.

        Have no doubt the economics of this from an NZ viewpoint are completely subsidiary to the bankers wishes to recoup the money borrowed and / or take a stake in our productive assets at the same time. This sale process is a sure sign that Key has blithely given away economic sovereignty for electoral success.

  6. bbfloyd 6

    after all the technical stuff has been debated ad infinitem…. we are still left with the reality that this is just the aristocracy taking back what we shed blood to gain….. dignity in our work… a future for our kids…a balanced, healthy, democratic society that works for the whole of society…..

    they were never going to accept that they had to share any of the loot in order to create a better reality for the masses… they are the masses after all… no explanation required……

    why spend time debating minutiae when we should be planning round three of the revolution?

    whether we want to face it, or not, we are at war with those who would have us in chains working as they see fit for as little as required to keep us alive so that we can keep working for as long as it takes to replace us with younger, healthier, slaves….

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