8 reasons why state asset sales will struggle

Friday, September 2nd 2011, 1:18PM 1 Comment

There are lots of things on my mind at the moment, but the one for today is the government’s proposed sale of state assets. It’s on my mind as National Radio asked me about it yesterday.

As a general comment the funds management industry are supportive of the idea – no doubt for their own commercial reasons as well as philosophy.

In a speech this week Bill English talked about Kiwis lining up to buy into these companies. Part of the logic was something about failed finance companies and less interest in property investment than before.

It’s hard to see people lining up to buy into these companies. I don’t detect strong investor demand. Am I missing something here?

Here’s where the problems are:
1. Polls show the electorate is against the idea of state asset sales (no matter what euphemism you wrap them up in.
2. The public aren’t stupid. They understand that they already own these assets and paying for something they already own is a bit like robbing Peter to pay Paul.
3. Likewise getting EQC, ACC or the Super Fund to invest is just transferring money within different Crown owned entities.
4. It’s hard to see KiwiSaver funds racing for these assets. The majority of money sits in default and conservative funds. These beasts are big buyers of NZ shares.
5. Do we really want a sharemarket that is overweight in energy companies, and has little resemblance to the NZ economy? How about getting more primary sector businesses on the bourse.
6. These companies aren’t the exciting growth type stories. They are not Apple or Microsoft, or Rakon or 42 Below. They are stodgy infrastructure companies that always have the sceptre of price regulation hanging over them. It seems to me Kiwi investors are quite comfortable with term deposits as their income plays these days.
7. Likewise I can’t see residential property investors ditching their boxes in the burbs for some energy company shares. That’s like asking a Muslim to go to communion.
8. Selling shares does nothing to help these companies raise capital. These proposed floats are a transfer of existing capital. Air New Zealand, with its current bond offer, has shown us there are options for raising funds.

Then of course there are all those chestnuts like foreign ownership.

National has got a massive sales job on its hands with this one. One thing that maybe in its favour, and this was demonstrated yesterday in the panel discussion I took part in, is that many people don’t know enough about these things.

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Comments from our readers

On 2 September 2011 at 2:41 pm Kimble said:

2. Wow. Really? They already own 100% of the assets? No, they "own" 1/4 millionth 0.000025% of it each. 49% of the assets will be sold. If an individual buys 1%, then they will own 1% PLUS 51%*0.000025%. Everyone else will "receive" money in exchange for their 49%*0.000025%. Except they dont receive money directly, because they dont "own" it in that sense.

Nobody is paying twice for the same asset.

4. I assume you mean they arent big buyers of shares? In any case, the current allocation in KiwiSaver is not the concern. What WILL the allocation be in 10 years time?

5. As opposed to being overweight in telecommunications and having little resemblance to the NZ economy? This is as much an argument against asset sales, as is the fact that asset sales also wont stop people smoking.

6. On this point you are just talking about price, not the sale.

7. Again, asset sales wont have people buying fewer boats either, so what?

8. I didnt realise that raising capital was a justification for the sales. Source?