Float proposal low risk, says expert

John Key has suggested local investors may be able to buy shares in the businesses at a discount. Photo / Greg Bowker

The partial privatisation model for state-owned enterprises unveiled yesterday by the Government means the asset sale mistakes of the late 1980s and 1990s are less likely to be repeated, says prominent investment adviser Brian Gaynor.

Beginning in 1988 with the David Lange-led Labour Government, and ending in 2000 when Helen Clark's Government called a halt to privatisation, about 30 state-owned enterprises including Air New Zealand, NZ Railways, Telecom and Contact Energy were sold off for a total of just over $19 billion.

The most controversial asset sales of that period saw the Government sell 100 per cent of Telecom, Air NZ, and NZ Rail to private, mostly foreign investors.

While Prime Minister from 1990 to 1997 Jim Bolger recently acknowledged "some of our privatisations were done for a song", selling off those assets enabled the governments of the day to pay down debt. But critics including Mr Gaynor have argued the sale of those businesses to foreign investors meant New Zealand's financial position with the rest of the world suffered over time as profits flowed offshore.

Telecom has been frequently accused of underinvesting in its network while paying out large dividends to its foreign investors, who still own 70 per cent of what was until recently our largest listed company.

Worse still in the case of NZ Rail and Air NZ, the last Labour Government chose to repurchase the businesses for strategic reasons, paying much more than they originally fetched.

The prospect of foreign ownership was quickly raised by Opposition politicians and others yesterday when the Government unveiled its plan to sell up to 49 per cent of state-owned energy companies Mighty River Power, Meridian, Genesis and Solid Energy.

"Half of New Zealand's state assets will soon be owned by Chinese interests because China is one of the few countries with ready cash to invest in countries like New Zealand," Winston Peters warned yesterday.

However, Mr Gaynor said the model put forward yesterday was closer to that used when the last National Government sold its stake in Auckland Airport in 1998.

Mr Gaynor said the Government's shares would be sold direct to the public rather than to large foreign investors.

"It's a huge difference. To me this is great. What the Government should be doing in a small country like New Zealand is nurturing industries, getting them to the stage where they can stand on their own and hopefully finding new things it can invest in and nurture in a constant process."

Mr Gaynor said it was important that the assets sold were widely retained by local investors but New Zealand's investment environment was now more likely to encourage that, principally due to the Takeovers Code, which did not exist at the time of the asset sales of the late 1980s and early 1990s.

The code, in combination with the Government's minimum 51 per cent stake, means foreign investors have little chance of accumulating a controlling stake in the businesses.

With a TV3 poll yesterday finding 80 per cent of those asked were opposed to asset sales against 12 per cent who supported the idea, Mr Gaynor said it would be politically very difficult for the Government to succeed with its plan, much less to later sell down its holdings below 51 per cent and lose control.

While Mr Key yesterday indicated that local investors might be able to buy shares at a discount, Mr Gaynor said that might encourage them to sell quickly to make a quick profit, which could see overseas investors swoop on the shares.

"You really want people to buy into them on a long-term basis."

SELLING THE FAMILY SILVER

* The Labour government pocketed $660 million when it sold Air NZ in 1989 but 12 years later when back in power spent $800 million to bail out and assume control of the national flag carrier.
* Labour also sold Post Bank in 1989 for $678 million but when back in power last decade spent hundreds of millions building Kiwibank.
* Graeme Hart's purchase of Government Print in 1990 for $38 million proved to be an incredible bargain which gave him the foundation on which he subsequently built a business empire.
* Jim Bolger's National government sold NZ Rail to a consortium including merchant bankers Fay Richwhite and overseas investors in 1993 for $328 million. The last Labour government paid $665 million to buy it back in 2008.
* Labour sold Telecom to US companies Bell Atlantic and Ameritech in 1990 for $4.25 billion subsequently regarded as a bargain.