SOE values wide of the mark, says Treasury unit

Banks valued Solid Energy at about 50pc of its board's estimate of $3.3 billion. Photo / Greg Bowker

Some top state owned enterprises have been overvalued by their boards - with one worth only half its estimate, two reports for the Treasury say.

Solid Energy is worth only $1.65 billion rather than its board's estimate of $3.3 billion, according to the independent "commercial" valuations.

Mighty River is undervalued, according to both reports.

Others have received valuations either above or below their board's estimates.

The Treasury is poised to offer the Government advice around possible privatisation options.

The information was provided in the first annual report by the Crown Ownership Monitoring Unit - a division of Treasury which a year ago assumed oversight of government owned companies and financial institutions with an estimated value of $95 billion.

COMU general manager John Crawford, a former economic adviser to Prime Minister John Key and his predecessor Helen Clark, said his unit's primary objectives were to improve the financial performance of state owned enterprises and other Crown entities and investments.

That includes the Government's $55 billion "commercial portfolio" which takes in power companies Meridian, Mighty River and Genesis.

Recent work by the COMU included new commercial valuations of SOEs.

Those valuations - two for each SOE and conducted by investment banks First NZ Capital, Forsyth Barr and Macquarie Bank - would be released over the next month, starting yesterday with NZ Post.

However, COMU yesterday released information which provides an indication of how consistent those valuations are compared with the companies' estimates.

In state-owned coal miner Solid Energy's case both banks valued the company at about 50 per cent of its board's estimate of $3.3 billion.

National grid owner and operator Transpower was valued at about 70 per cent of its board's estimate by one bank but 120 per cent by another.

Details of the Solid Energy and Transpower valuations will be published next week, while those for Genesis, Meridian and Mighty River will be released in mid-January.

Mr Crawford said the variance between the independent valuations and those by the companies was probably down to different approaches.

For example, most of the variance in the Solid Energy valuation was because of differences in views on what will happen to coal prices.

Both the board and independent valuers had professional advice to support their views and COMU was not interested in deciding who was correct.

Nevertheless, the exercise was conducted because Treasury wanted to get a view of "true" rather than "accounting" values, Mr Crawford said.

Treasury believed KiwiRail's book value, "is probably several times more than what we think it's worth as a business."

He said Treasury had been doing "internal thinking" around ownership of SOEs, "and that came out in an interview earlier this year with [Treasury Secretary] John Whitehead".

In May Mr Whitehead said Treasury was considering issues around privatisation of state owned assets, including why it was controversial in New Zealand and "what people were worried about".

Mr Crawford said that work, including a look at arguments for and against Crown ownership, and the pros and cons of partial and full ownership, was complete.

The Government has said it will not sell state assets this parliamentary term but would review its position before the next election.