Brian Fallow

The Economics Editor of the NZ Herald

SOE bosses welcome sell down

Joan Withers says decisions in listed companies are reflected in the share price 'rather than a theoretical valuation'. Photo /
Joan Withers says decisions in listed companies are reflected in the share price 'rather than a theoretical valuation'. Photo /

Mighty River Power's board believes partial privatisation is in the best interests of the company.

The company is the first state-owned enterprise earmarked for selldown under the Government's mixed ownership model programme this year.

Appearing before Parliament's commerce select committee on Thursday, Mighty River chairwoman Joan Withers said the day-in, day-out scrutiny of analysts would improve the company's performance.

When questioned by the committee's Labour members about what was to be gained by selling a company which performed as well as Mighty River, she acknowledged that their legislation required that state-owned enterprises be run as if they were investor-owned.

"But if you are a listed company every decision you make is viewed by the market and reflected in the share price, rather than a theoretical valuation," said Withers, who also chairs Auckland Airport.

Chief executive Doug Heffernan added that over the past decade more than $1 billion of profits had been reinvested in the company which might otherwise have been paid as dividends to the Crown.

"Ministers are always asking 'How can we be sure this is a sensible investment?'," he said.

A benefit of becoming a listed company would be that its decisions would be scrutinised not just by bureaucrats but by a wide set of analysts and those contributing capital.

David Cunliffe asked what might have been different if the company had been 49 per cent privately owned.

"We spent $100 million on upstream gas in the mid-2000s," Heffernan said. "We should have stopped earlier or not started at all. The share price would have drifted south."

When Dame Jenny Shipley, who chairs Genesis Energy, was asked where the upside was in a partial float she said the broader economic benefits were a matter for the shareholder, not the board. In Genesis' case there was already an obligation of continuous disclosure arising from the fact that it had corporate bonds listed on the stock exchange.

The board would continue to seek improved returns whatever the ownership was.

Solid Energy chairman John Palmer said that the market's response to what it did by way of continuous disclosure was "That's interesting, but not material for us because we don't have money at risk".

Palmer was pressed on what might happen if the board wanted to proceed with an investment that met its hurdle rate of return and was supported by minority shareholders, but the Crown was unwilling to stump additional capital required to maintain its 51 per cent stake.

What could directors required to act in the interests of all shareholders do then?

Minority shareholders would have invested in the company knowing that the Crown was the majority shareholder, said Palmer, who also chairs Air NZ. But one option would be to have an initial public offering for the new venture or project.

All three SOEs outlined where they saw their strengths and potential for growth.

Mighty River's is world-class expertise in geothermal generation.

The opportunities lay offshore, Heffernan said, especially in Chile, which has a lot of geothermal potential, in the US, where the company has just commissioned a large geothermal joint venture, and Germany, where subsidies compensate for the low temperature of the resource.

Genesis is looking to capitalise on the combination of the largest customer base of the generator/retailers with the potential of smart meters to tailor offerings to consumers which would save them money while shifting the timing of demand in a manner helpful to the company.

It has started trials of multi-rate tariffs in Auckland and plans to in Christchurch, chief executive Albert Brantley told the committee.

Solid Energy is keen to develop projects to add value to Southland's vast lignite resource, and is working on underground gasification of coal in Waikato that is too deep for conventional mining.

- NZ Herald

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