Stock Takes: Why selling Government-owned assets can make them better

The air traffic control at Auckland Airport was built in 1963. Photo / Brett Phibbs

There’s been significant talk in recent months about the prospect of selling Government- and council-owned assets.

Much of the debate has been centred on the Auckland Airport and the Ports of Auckland, with both sides of the political divide expressing their views.

While citizens might be concerned about letting go of council-controlled assets, Fisher Funds portfolio manager Matt Peek tells the NZ Herald’s Stock Takes podcast that there are some advantages in privatising ownership.

“It can be a bit of a wake-up call for the company,” says Peek.

“It depends on how well the council or the Government manages the business, but often councils and governments aren’t really set up to manage businesses to their full potential. They’re there to look after the interests of their constituents, so running a business can take a backseat.”

Peek says that once the organisation shifts into private ownership or is listed on the stock market, the incentives shift.

He explains that there’s more flexibility to incentivise the management team in a way that drives performance and also improves accountability.

“You can really see businesses perform better and deliver better results in that environment,” Peek says.

In addition to this, Peek also notes that potential investors would welcome an organisation receiving this kind of wake-up call.

“Evidence suggests this has been a successful model with the government IPOs of the electricity companies and we’ve also had Napier Port list on the stockmarket and raise money to invest in its six wharf developments. That was an instance where the council didn’t want to put the extra capital in to fund growth development,” he says.

“Investors have an appetite for good businesses that need capital to list on the market. And it is certainly something that we’d like to see more of in the New Zealand context, where we don’t always have that many new companies come into the sharemarket.”

But given that businesses often focus on making a profit, could this affect the experience of those who use previously publicly-owned services?

Looking at the example of the Auckland Airport, Peek says there aren’t likely to be any huge changes if the council were to eventually sell its 18 per cent stake.

“The asset will still be managed by the same management team and it’s already publicly listed... There’ll just be some other party that owns those shares instead of the council.”

Peek says the most significant change the average New Zealander is likely to see will come in the shape of the massive development project, which will see the integration of the domestic and international terminals. And that’s a plan that every potential owner will want to see completed as rapidly as possible.

So do large asset sales of this nature work? How much money can they raise? And will the market even be willing to pick up the shares of businesses previously run by the Government?

Listen to the full episode of the Stock Takes podcast to hear the full discussion on this issue.

Stock Takes is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every Wednesday and are brought to you with support from Fisher Funds.