Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Lots riding on Mighty River verdict

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Maori Council claim has the potential to send Government IPO scheme back to the drawing board.

Bill English, with Prime Minister John Key. Photo / Mark Mitchell
Bill English, with Prime Minister John Key. Photo / Mark Mitchell

John Key and Bill English have been on tenterhooks waiting for the Supreme Court judgment on the Mighty River sales process.

Mighty River Power is first cab off the rank in a series of state IPOs (partial privatisations) which English had previously hoped would net $5 billion to $7 billion and take the pressure off the Government's accounts.

There is a lot riding on a successful float of up to 49 per cent of the power generator's shares to private investors.

If the Supreme Court comes down on the Maori Council's side, or orders the Government to withhold shares to use for settlement of Maori water claims, this will inevitably have a significant and deleterious impact on the amount that will be realised.

Major milestones hinge on this: Whether the Government will post a return to budget surplus within its stated time frame; and whether it will have to curtail the capital expenditure which was to be funded by the asset sales proceeds or raise revenue elsewhere.

At the time this column was filed, the Government was still waiting on the Supreme Court's pronouncements.

The brute reality is, if the Supreme Court does throw a massive spanner in the Government's plan to sell Mighty River Power shares, there will be run-on effects to the two other power generators which will also go on the block: Genesis Energy and Meridian Energy.

The Maori Council's initial claim covers not just water rights but also rights to geothermal energy. Hence a judgment by the Supreme Court in the Maori Council's favour - or court orders that constrain just how many shares the Government can sell - will have a broader impact.

What started out as a straightforward Government IPO programme has become complex.

The furore over Solid Energy, which has now been withdrawn from the list of five government companies lined up for partial privatisation amid debate on whether it is effectively insolvent, will (whether the Government likes it or not) ensure increased attention is paid not only to the statements in IPO prospectuses for the four remaining companies (Mighty River Power, Genesis Energy, Meridian Energy and Air New Zealand) but also as to the personnel leading the companies.

English has suggested the Mighty River IPO could even be pushed through before his May 16 Budget.

It's a big call and tends to suggest the IPO advisers already have very strong indications of the likely appetite from bigger institutional players, foreign investors and the local market.

At first blush the Finance Minister's statements seem rather brash. But it's worth noting that on the Government's original timetable the float would have taken place last year and it would already be preparing the second power generator IPO.

The upshot is that if Mighty River is floated before May 16 and achieves above projection results, the Government will not be under quite so much pressure to revise the $5 billion to $7 billion assets sale proceeds projection.

Where it gets more difficult is with plans for the Genesis Energy IPO and a further sell-down of Air New Zealand which already has substantial private sector participation.

Genesis Energy chairwoman Dame Jenny Shipley's credibility has inevitably come under scrutiny as a result of the collapse of Mainzeal, which she chaired before receivers were appointed.

John Palmer, who chairs Air New Zealand's case, was also chair of Solid Energy during the period when it expanded its operations.

Shipley has still to front the media directly on the Mainzeal collapse, which was announced on Waitangi Day.

But yesterday she came under pressure to do exactly that when announcing Genesis Energy's results.

Reportage of the briefing went like this: "I am always here at the behest of the shareholder," said Shipley, when asked if she expected to lead the company into a public share float, perhaps as early as November this year.

"I have always been judged by results in my career and I will be in the future," she said after repeated questioning which she tried to avoid.

Asked whether she would consider stepping down, Shipley said: "This company has gone from being a good company to an excellent company. I ask that people judge the performance of this company on its results."

In the commercial world, directors know that business is risky.

Markets change. Competitors steal your lunch. Disruptive technologies impact on businesses.

It's the "shit happens ... you've just got to deal with it" syndrome.

And around the senior business community there is plenty of support for Shipley from directors and chairmen who have been in similar situations.

The problem is that while many of our chairmen and directors have presided over listed companies which have ultimately gone into receivership, struggled, or been taken over or wound up, in the public sector the focus of attention is not simply commercial but it is also political.

Currently, Key is trying to preserve Shipley's position. But if there is too much backwash from Mainzeal he would likely indicate it is untenable.

It is interesting to note that Palmer has not gone public on Solid Energy's difficulties.

When he stood down in favour of Government-appointed "Fix-it Man" Mark Ford he talked about wanting to have more time for himself, but also urged the Government to proceed with the asset sales programme.

Both Palmer and former Solid Energy CEO Don Elder are in an invidious position. Neither can give their side of the story: Palmer because he is still chair of Air New Zealand, and Elder because he has been told in no uncertain words to keep his head down ever since Ford marched in.

The upshot is that ministers - including Key - have been merciless in laying the blame for the company's downturn at their feet.

Palmer is expected to stand down from Air New Zealand this year.

Meridian is in a different position. It is in contract negotiations with its major customer, the Tiwai Point smelter.

From Key and English's perspective they need these sales to work out.

From the companies' own perspective, having commercially driven shareholders on board should help pave the way for stronger future results and robust testing of prospective investments by boards.

It is just one court judgment away from reality - or back to the drawing board.

- NZ Herald

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