Kiwis tipped to invest $2b a year in state asset floats

Selling shares in state-owned companies such as Meridian Energy could bring in up to $7 billion, Cabinet documents say. Photo / Simon Baker

New Zealand investors should be able to stump up $2 billion a year for shares offered in partially privatised state-owned enterprises, the Treasury says.

A May 9 Cabinet paper among a dump of Budget advice released by the Government yesterday says that, given the Government's desire to achieve "widespread and substantial" New Zealand ownership in the companies concerned - Meridian, Genesis, Mighty River, Solid Energy and Air New Zealand - initial public offerings are the preferred model.

"Treasury's discussions with market participants suggest there is likely to be domestic demand for up to around $2 billion in any 12-month period, across both retail and institutional investors."

An indicative range of how much the sell-downs could realise is between $5.5 billion (retaining 60 per cent Crown ownership) and $7 billion (retaining 51 per cent).

That compares with $18 billion raised by extensive state asset sales in the late 1980s and early 1990s.

"With some companies, dividend reinvestment plans and planned capital expenditure may make it prudent to hold more than the minimum 51 per cent, to ensure the Government's majority holding is not diluted over time," the Cabinet paper, signed by Finance Minister Bill English and State-owned Enterprises Minister Tony Ryall, says.

It acknowledges the commitment that New Zealanders be "at the front of the queue" but says "overseas investors have an important part to play in providing pricing tension to support the Government's fiscal objectives" - Treasury-speak for bidding up the price to maximise the amount the Crown raises.

The ministers say they intend to "maintain flexibility on the potential use of foreign ownership restrictions" such as individual or total ownership caps (as in Telecom) or separate domestic shares (as when Air New Zealand was privatised in the late 1980s).

The desirability and scope of such restrictions would be examined further when detailed scoping studies were done.

The need to be confident of widespread, substantial domestic ownership is one of five tests the Government has set for going ahead with the mixed ownership model.

Overall, the Cabinet paper considers that to be achievable, noting the likelihood that private sector fund managers, and Crown financial institutions such as the Cullen Fund and ACC, will take up shares to maintain their desired weightings in New Zealand equities. Iwi are also expected to be interested.

The ministers mention possible restructuring of Genesis Energy and Solid Energy, to enhance their attractiveness, but the papers released yesterday do not elaborate on what form this restructuring might take.

Another of the Government's self-imposed tests is the need to be satisfied that regulation in the relevant industries adequately protects consumers.

As three of the candidates for a sell-down are electricity generators and retailers, this puts a lot of weight on the measures recommended by the Layton review of the sector in 2009, which are either in place or due to be implemented this year or next year.

The ministers have every confidence consumers will be adequately protected and potential investors will have sufficient regulatory certainty.

SOE SHAKE-UP

Cabinet paper says:
* $5.5 billion could be realised if Crown floats 40 per cent of Meridian Energy, Genesis Energy, Mighty River Power, Solid Energy and Air NZ.
* $7 billion could be realised if Crown floats 49 per cent.
* Foreign investors could help drive up the price for shares in the companies.
* Genesis Energy and Solid Energy could benefit from restructuring to enhance their attractiveness.