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?
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