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Bernard Hickey 's Opinion

Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Asset float a flop

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The asset sale programme was an epic fail. Photo / Richard Robinson
The asset sale programme was an epic fail. Photo / Richard Robinson

The low turnout and the low price set in the Meridian Energy float this week has confirmed the failure of the Government's "Mixed Ownership Model" (Mom) on its own terms, as well as an exercise in national financial planning.

Just 62,000 investors signed up for the float, little more than half the 113,000 who invested in Mighty River Power in May and around a quarter of the 225,000 who invested in Contact Energy in 1999.

That is a dismal response and if the trajectory is continued for Genesis Energy then around 30,000 would sign up for the last of the energy floats.

The Government's argument that it wanted to widen and deepen the ownership and the make-up of the stock market was the only good one for the asset sales programme.

But selling 49 per cent of the biggest electricity generator in the country to just 1.4 per cent of the population is not a democratisation of the stock market.

The Mom programme also failed to strengthen the share market. Instead, the sales have triggered a backlash wiping a combined $1.3 billion or 13 per cent off the stock market values of Contact Energy, Mighty River Power and TrustPower.

This was at a time when the stock market rose more than 10 per cent.

The Government is blaming the Labour-Green opposition's New Zealand Power plan for the poor result and turnout, but its own decision to press ahead with the asset sales without first making the electricity market truly competitive made that backlash inevitable.

The Mom programme has also wiped more than $1 billion from the value of Meridian measured by Treasury before the Labour-Green intervention.

At current market prices, the Government is on track to receive a total of $4.9 billion for the sale of stakes in Mighty River, Meridian and Genesis, and that's before sale costs estimated at $143 million.

So far the Mom programme has cost taxpayers and private investors more than $2.4 billion in the form of lower valuations for energy companies and asset sale costs.

And the benefits?

Treasury estimated that the forgone dividends from state-owned enterprises over the next five years would be $810 million and that interest costs would be reduced because debt repayment would be $780 million, producing a net benefit of $30 million over five years.

By its own measures of success, the Government's Mom programme was an epic fail.

It blew away $2.4 billion of shareholder value to save $30 million of interest costs and failed to democratise or strengthen the sharemarket.

So what was that all about again?

Debate on this article is now closed.

- Herald on Sunday

Bernard Hickey

Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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