Sell, sell, sell

December 19th, 2013 at 12:00 pm by David Farrar

Stuff reports:

State-owned enterprises’ performance has been “mediocre” in the last year, the Treasury says.

The Crown Ownership Monitoring Unit (Comu) today released the annual report of its portfolio, which reviews the performance of 49 government-owned enterprises that have full or partial commercial objectives.

All up, the enterprises employ more than 40,000 people, holding $125 billion in assets and $52b in investment funds at the end of June.

While the performance of the investment funds, mainly ACC and NZ Superannuation was strong, returning over 25 per cent in the year to June 30, the report was less kind about the other companies.

“While some State-owned enterprises have performed well, overall performance of the Crown’s commercial portfolio has been mediocre, with poor performance by Solid Energy, KiwiRail and Learning Media,” the Treasury said in a statement.

“Total shareholder return across the wholly owned commercial priority companies was 3 per cent,” the Treasury said, adding that this did not include KiwiRail because of the change in its structure at the start of 2013.

The number of companies the Crown should own is very few – there is a case for the odd utility monopoly like Transpower, but the rest should be owned by he private sector who are better suited to balance the risks and rewards.

Solid Energy almost went bust, as it is highly vulnerable to the global coal price. Kiwirail is a dog. NZ Post is profitable but in a dying industry. TVNZ has a business model that will also disappear in the not too distant future. We should sell them all while we can get some money for them.

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28 Responses to “Sell, sell, sell”

  1. Mighty_Kites (77 comments) says:

    Because the latest asset sell downs have been a roaring success

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  2. Kleva Kiwi (267 comments) says:

    NZ post is not in a dieing industry. Royal mail and German Post have been reporting strong returns and high growth in their fields as the invest more heavily in parcel and package delivery. US postal services are also project stronger future returns and it is all thanks to the online market revolution which has increase posted packages ten fold in the last few years.
    NZ Post has been left in the dust as it has not made much investment in the evolving and changing deliveries markets. Not only that but any and all free capital has been forced to go into the under preforming Kiwibank subsidiary effectively destroying any potential development in its core industry.

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  3. queenstfarmer (696 comments) says:

    Because the latest asset sell downs have been a roaring success

    Yes they were a success, though not a roaring one due to the deliberate economic sabotage of Labour and the Greens.

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  4. PaulP (126 comments) says:

    Agreed Kleva Kiwi.

    When it is cheaper to courier an item rather than mail it there’s a business model that needs changing!

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  5. calendar girl (1,108 comments) says:

    “NZ Post is profitable but in a dying industry.”

    It is also saddled with KiwiBank as a subsidiary. KiwiBank soaks up NZ Post’s mail and parcel-delivery cashflows, and distracts the Group Board from attention to the strategies of NZ Post’s still-profitable core businesses.

    There was no valid justification in the first place to set up a Government-owned trading bank. It was an ideologically-driven creation of Labour exile, Jim Anderton, the price extracted by his further-to-the-left Alliance Party for coalition with the Labour Government of Helen Clark.

    NZ Post and the taxpayer have been paying the price ever since.

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  6. Jack5 (4,231 comments) says:

    NZ Post should be cleaning up with the surge in parcels from internet retailing.

    How often do you find couriers (including NZ Post’s) lacking, leaving a card so you have to drive across town, stand in a queue and wait while they find the parcel.

    Wouldn’t door knocking posties with some sort of very small vehicles to carry parcels be great? You have a rough idea when they are coming. For those buyers who have no-one at home during the day, some sort of other system would be needed perhaps like pick-up centre mini-kiosks around the town open, 7.30 to 9.0 and 11.45 to 2.30.

    At any rate I don’t think the business of parcel delivery at the moment is anywhere near optimum.

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  7. Jack5 (4,231 comments) says:

    Re calendar girl’s 12.36 post at 12.36 on Kiwibank.

    National’s Jim Bolger seems to have been enthusiastic about Kiwibank.

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  8. burt (7,096 comments) says:

    We should sell them all while we can get some money for them.

    The unions won’t agree… So with National being too scared to change any Labour policies or wrestle ownership of the country back from the union elite – we will be subsidising them for a few more decades yet.

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  9. calendar girl (1,108 comments) says:

    “National’s Jim Bolger seems to have been enthusiastic about Kiwibank.”

    Agreed, but one man’s enthusiasm doesn’t make it right in a business or political sense. The facts speak otherwise.

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  10. Nick R (443 comments) says:

    Well, as long as there are mugs like DPF still queuing up to throw their money away on these turkeys – why not?

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  11. Nigel Kearney (747 comments) says:

    I agree the Crown should not own these companies, but it is not a logical compromise for the government to sell part of them but keep a controlling stake. Poor decision making due to perverse incentives still exists, i.e. keeping the minister happy instead of keeping customers happy.

    A part sale without control changing hands does not make a business more profitable. It is simply a bet that the value of the sale will exceed the discounted value of future profits. So it comes down to whether the agreed sale price will lead to investors or the government winning that bet. Nobody really knows but I would back the side betting with their own money to get it right more often than the side betting with my money.

    The other risk is that it’s easier for the government (or more likely the next government) to over-regulate because the resulting destruction of profit doesn’t affect their books as much.

    So overall I am having trouble seeing the partial sales being a net benefit to NZ.

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  12. m@tt (535 comments) says:

    With the exception of right wing echo-chambers, the referendum is widely acknowledged as delivering a clear message that asset sales are NOT mandated.
    I look forward to John Key explaining before the next election how they want a mandate to sell more assets and the only way to stop them doing it will be to vote for a party of the left.

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  13. dime (8,789 comments) says:

    m@tt – lol you always crack me up. widely accepted? by wussell, fatty, no friends etc etc

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  14. burt (7,096 comments) says:

    m@tt

    It’s OK, once Labour get back into power and raise taxes and hold the thresholds ridiculously low for … 9 years … fiscal drag will make sure that nopbody can afford to buy assets… Like last time under Labour, the government will be paying back government debt while households are borrowing to pay the power bill.

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  15. Camryn (549 comments) says:

    @Nigel – You make good points, but I think it is good to at least get the entities listed even if they cannot be completely sold. That way, there’s people closely watching any meddling via either of the routes you identify (as remainder majority shareholder or as regulator with less to lose).

    I say that even recognizing that the mixed model does have associated costs even beyond the risks you mention… e.g. the government did get less per share than it would’ve with a >50% sale since the fact it remains majority owner did make the shares less attractive. The government probably had to sell at less than the discounted value of future profits just to make the political compromise of mixed-ownership. So, I do wish they’d gone the whole hog and sold 100% to anyone who’d buy. Labour and the Greens could hardly moan more. But, I still prefer what they did to doing nothing.

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  16. KiwiGreg (3,129 comments) says:

    I agree the mixed-ownership model is flawed. i’m guessing it’s what the Nats thought they could get away with without too much electoral damage. There isn’t an SOE or a COE we wouldnt as a country be better off not having the state owning but they have to work in with what is politically possible commensurate with getting re-elected.

    I for one would be selling the housing corp stock, the school real estate (all good investments with presumably long term leases to the Crown) on top of this.

    I’d also force the disgorgement of the local body owned commercial assets.

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  17. Camryn (549 comments) says:

    m@tt – We elect governments because of their overall policies and, to a good strong extent, capabilities. Governments are *supposed* to make decisions for us, not necessarily the decisions we would make on each individual issue. Representative democracy is supposed to be exactly like this.

    So, I wholeheartedly endorse you making as much noise as you like about the referendum result being an indicator that a lot of people question the decision… representatives should take that into account and I’ve certainly done the same in the past on other issues. But, a “mandate” (or lack of one) does not derive from a referendum. If you are the government, you have the mandate to do whatever you like, whenever you like.

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  18. Pete George (21,830 comments) says:

    Part selling was fairly widely unpopular but not strongly unpopular except amongst a few party interests. 100% sales would have been much harder for National to survive.

    I look forward to John Key explaining before the next election how they want a mandate to sell more assets

    Bill English has already explained that National won’t seek to sell more assets next term. So they won’t have to seek any mandate on asset sales.

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  19. Bob (443 comments) says:

    Selling government businesses? What will the communist Greens have to say? Don’t you know private enterprise is evil? Originally turning government department run businesses into independent organisations owned by the government was a good idea. But we have moved on. It is time to completely privatise them.

    Labour condemning asset sales were crowing about buying back rail and Air New Zealand. They didn’t mention the fact they paid far too much for NZ Rail leaving the Australians delighted with their profit. It would be good to put NZ Post into the hands of a very competent private businessman to see what he could make of it. There could be other successful businesses models which could be incorporated into it other than delivering mail. It won’t be the first company which has moved away from it’s original reason for being.

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  20. burt (7,096 comments) says:

    m@tt

    Remember the golden rule made by the ( ahem …) best PM ever….

    The business of government is whatever government define it to be….

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  21. itstricky (1,148 comments) says:

    What sort of rational person proclaims sell sell sell them all without analysing the individual performance of each? Someone who lets philosophy overtake logic perhaps? Same person who hasn’t published a post about the $300mil p.a. That the Government is now not getting post this round of sales?

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  22. wikiriwhis business (3,302 comments) says:

    If assets had really been designed for mum and dad investors as govt PROMISED the sales would have been phenomenol.

    Nationals deception will fly back in their face in 2014.

    Pike River deception won’t be forgotten either.

    The Nat/Lab coalition really believe they dealing with 5 y o”s.

    The public is tired of repetitive deception.

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  23. burt (7,096 comments) says:

    wikiriwhis business

    Perhaps Mum & Dad investors would have been more motivated to buy if they were not concerned that the Labour party would confiscate them back using the power of parliament at some time in the future.

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  24. burt (7,096 comments) says:

    wikiriwhis business

    The public is tired of repetitive deception.

    Yes… Hurry hurry or I’ll miss the Rugby – I had no idea how fast we were travelling …..

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  25. labrator (1,691 comments) says:

    An interesting argument that I’ve been formulating is that the Government is already a shareholder in every business in New Zealand without any of the risk. They get to take 28% of the profits of that business without doing anything and if the company loses money, well they don’t have to fork out or take any other shareholder responsibilities. Why would they want any part of the normal shareholder responsibilities when they’re on a dream ticket already? Following on from this we really want more businesses making more money so that fixed percentage of the pie results in bigger returns. Competing with yourself is a little self-destructive. No capital gains sure but when the ideology is to never sell no matter what, that’s a null argument.

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  26. OneTrack (1,979 comments) says:

    “Same person who hasn’t published a post about the $300mil p.a. That the Government is now not getting post this round of sales?”

    I thought the parties of the left were extremely worried about the cost of power so they hustled up a new government department to keep power prices down. Which means the “assets” wont be delivering $300 million to anybody, will they.

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  27. itstricky (1,148 comments) says:

    If if if if if only this if only that if only only if OneTrack. I couldn’t care two shakes about what Labour might or might not want to do *if* they get into power. Pointless political point scoring based on some us versus them mentality.

    What I could care about the very “right here and now” obvious numpty decision to sell well performing assets to the benefit of only a select few who can afford to fork out for them and at the detriment of the country as a whole. I hope Mr Key has some very good plans for those handfuls of billion.

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  28. itstricky (1,148 comments) says:

    is that the Government is already a shareholder in every business in New Zealand without any of the risk. They get to take 28% of the profits of that business without doing anything

    You seem to have confused individual personal profit with collaborative, collective social responsbility somewhere along the line. Investors get *growing* returns for risk, Government mearly funnels the company’s contribution to society – no risk involved nor implied.

    Unless, of course, your musings where rhetorical and just a rather inventive, but ultimately boring, permutation of the old “look at me business, I pay so much tax, life is hard, Government s*” hootenanny.

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