Genesis float in March

February 25th, 2014 at 7:00 am by David Farrar

The Herald reports:

Prime Minister John Key has confirmed the Government will go ahead with the partial privatisation of Genesis Energy over the next month or so but has underlined the sale will be the last one under a National Government.

Finance Minister Bill English would give further detail about the Genesis sale including a broad timetable in a speech on Wednesday.

Mr Key said Genesis would be the last state owned enterprise (SOE) floated by his Government under its Mixed Ownership Model either before or after this year’s election.

It is good to see Genesis go ahead.

It is also no surprise that no further sales are planned. The five companies selected in 2011 were the obvious ones. They were all commercial trading enterprises, with competition. Other SOEs would be more problematic to sell.

My hope is that the partial have broken through the obsession that the Crown can never ever sell an asset, and can only acquire assets. Decisions should be made on a case by case basis. One can have a view that the Government should own Transpower, but now own Orcon – one of around 50 ISPs.

Mr Key again underlined the Genesis float would be the last asset sale under his Government.

“The truth is there aren’t a lot of other assets that would fit in the category where they would be either appealing to take to the market or of a size that would warrant a further program or they sit in the category that they are very large like Transpower but are monopoly assets so aren’t suited.”

I agree Transpower is not a great candidate for sale. However I would make the point that what matters more is that it is price regulated by the Commerce Commission, than it is owned by the Government.

Here’s the SOEs and Crown entities we do have left, and my thoughts on their potential for sale:

  • Airways – no, monopoly
  • AsureQuality – could be sold, but has some strategic importance to Govt
  • Landcorp – keep company, but farms should be sold to private sector where possible
  • MetService – too small to bother selling
  • NZ Post – I’d sell it on the basis its core business is disappearing and it may become unprofitable in a decade or so
  • KiwiRail – stuck with it – no one would pay a cent for it
  • Solid Energy – sell when market recovers, if it does
  • Transpower – no, monopoly
  • Kordia – some strategic importance for communications
  • Animal Control Products – never even knew this was an SOE! Sell before someone notices it
  • Quotable Value – sell, no need to own a valuation business
  • Public Trust – sell, almost all their functions have many competitors
  • TVNZ – sell while we can get money for it. Future business model looks shaky

What do others think? Which, if any, would they sell?

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29 Responses to “Genesis float in March”

  1. Pete George (22,750 comments) says:

    It looks more like a political decision than a sound business decision.

    Labour and Greens inflicted damage on the stock selling business with their NZ Power play to score political points – at the country’s cost.

    National are playing hard ball and are not backing down from completing their programme (except for the munted Solid Energy).

    This puts many millions at risk.

    It’s hard to see any party coming out of this with much credit. Political deficit seems more likely.

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  2. ross69 (3,652 comments) says:

    The asset sales have been a failure and it’s good to see some commentators say so. Of course those with a right wing ideology to push would never admit to this.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11146918

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  3. OneTrack (2,572 comments) says:

    No, the asset sales haven’t been a failure, even though the greens did their best to wipe millions off the value during the sales.

    High five greens. You are de financial gurus.

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  4. ross69 (3,652 comments) says:

    Labour and Greens inflicted damage on the stock selling business with their NZ Power play to score political points – at the country’s cost.

    As usual Pete, you’re selective with the facts.

    “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.”

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  5. ross69 (3,652 comments) says:

    Floating Genesis is a dumb idea.

    http://www.stuff.co.nz/business/opinion-analysis/9430919/Buy-into-SOEs-the-smart-way

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  6. alex Masterley (1,490 comments) says:

    You giving financial advice Ross?
    Quite frankly I prefer to take my advice from professionals.

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  7. itstricky (1,536 comments) says:

    High five greens. You are de financial gurus.

    I am still surprised that a bunch of self professed righties would even consider selling well performing assets

    NZ Post sure
    TVNZ maybe

    High five financial literates!

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  8. ross69 (3,652 comments) says:

    Prior to the float of MRP, John Key said mum and dad investors were his number one priorty.

    The government’s intention was to have “mums and dads…absolutely at the front of the queue,” Key told media on Tuesday.

    “They’re my number one priority, and we will make sure that we will be setting that at a level where it’s affordable for a lot of New Zealanders,” he said.

    Yet it turns out that some mum and dad investors who asked for a meagre $5000 worth of shares were allocated only $4000 worth of shares.

    That nice Mr Key really is very tricky.

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  9. itstricky (1,536 comments) says:

    Quite frankly I prefer to take my advice from professionals.

    Who would probably not say sell sell sell!

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  10. ross69 (3,652 comments) says:

    Quite frankly I prefer to take my advice from professionals.

    So I’m guessing you did not buy MRP shares…

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11194753

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  11. igm (1,413 comments) says:

    ross69: As you sit on your arse all day, doing nothing, kept by taxpayers, you now profess to have a full knowledge of commerce. You left-wing envious losers are all the same, profess to know everything, but personally doing nothing, having nothing, being nothing, and wanting everything. Your type makes me sick!

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  12. tvb (4,194 comments) says:

    The money raised would not be worth the political cost in doing it. Asset sales remain very unpopular in this country and there is nothing that seems to change it.

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  13. redqueen (452 comments) says:

    @ross69

    Oram shows his naivety…if you think that bonds are ‘secure’, then you’re obviously not that well versed. Unsecured borrowing is…wait for it…unsecured.

    Neither a borrower nor a lender be…(some exeptions may apply, particularly if you’re stuck trying to afford Auckland housing). Next we’ll all be complaining that foreigners own the country…oh wait, I’m sure that’s next… =P

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  14. redqueen (452 comments) says:

    @ross69

    That article is fantastic. Not only does it seem to contravene the Financial Advisers Act 2008, but it then goes on to link that Genesis is the most vulnerable to Tiwai Point…the mind boggles…this is a serious writer? 8-)

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  15. thedavincimode (6,526 comments) says:

    KiwiRail – stuck with it – no one would pay a cent for it

    Thanks again Cullen. What an arsehole.

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  16. Tauhei Notts (1,602 comments) says:

    As regards Mighty River Power;
    If Labour were selling it off they would have sold it for a 25% discount.
    Key, though, the trader; he sold it for 25% more than what the market says it is worth.
    If OUR assets are to be sold I want Key doing it. He has an uncanny manner of getting more for them than what they are worth.
    He sucked me in once; never again. Only a mug makes the same mistake twice.

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  17. srylands (385 comments) says:

    “I am still surprised that a bunch of self professed righties would even consider selling well performing assets”

    Of course you miss several points about the rationale for the partial sales.

    If we take the powercos: You have lost the plot. It doesn’t matter who owns them. What matters is that we have reliable, competitively priced electricity. That is what determines whether NZ is prosperous or not. You think when investors think about NZ risk they ask “Who owns the electricity companies?” Before the start of this process, most Kiwis could not tell you which of the powercos were SOEs and which were private.

    But back to your premise – we should own “high performing assets”. Does that include a buying strategy? Why not have the Government buy the top 5 performing NZX companies. Those dividend streams would be good for the Crown accounts.

    Why not? Because it would be fucking mental. It is not the Government’s business. Plus there is overwhelming evidence that market disciplines improve management performance and return to shareholders.

    So there is your answer. It is fucking dumb having the Government run commercial businesses.

    Given the political capital of the MOM process over the last 2 years I think the Government would have been better off selling 100% of the companies it partially floated. And thrown in NZ Post and TVNZ. I don’t think the political cost would have been much different. Of course the Government might argue that the MOM model was not a concession, but a good thing in its own right, retaining Government control. Personally I think it is inevitable that they will all be sold off, and you just have to repeat the whole misery all over again.

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  18. wreck1080 (3,723 comments) says:

    I’ve consistently maintained the asset sales have been a failure.

    The government just did not raise what they expected and investment performance has been rubbish.

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  19. dime (9,366 comments) says:

    As long as they raise over 40 bucks im happy.

    The Green idiot and the Labour moron who sabotaged this float should either be in jail or be handing over everything they own.

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  20. PaulL (5,872 comments) says:

    @wreck1080: the investment performance shouldn’t be a consideration for the govt. In fact, if they’ve handled it well the investment performance should be really crap – that means you managed to sell them for more than they were worth.

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  21. Lance (2,439 comments) says:

    Oh that’s right, shares only ever go down. Lefty financial nous.

    It’s odd, I bought a decent amount of Burger Fuel shares when it floated (did some homework). Went down to $0.60
    The commentators all laughed and sneered
    The other day they peaked at $3.00 before settling back to $2.60

    Who would have thought, share prices actually change.

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  22. Jack5 (4,569 comments) says:

    The Public Trust is now of little use to taxpayers.

    It predates socialism in NZ. Like State Insurance and Government Life Insurance it was set up by the State to give competition in a small colony to Australian firms, and in the Public Trust’s case, to then wealthy local lawyers.

    As a commercial regulation instrument and social-policy idea, I don’t think it was bad at the time. It provided a cheap means for ordinary working New Zealanders to make wills and have their modest estates wound up.

    Lawyers, of course, never liked it. The economic reforms turned the Public Trust into something else.

    It was in its old form a quite reasonable service to the poorer majority of New Zealanders, and a far better form of State intervention than welfare and leftist controls. The Public Trust is a different beast now, of course, and DPF is probably right that it might as well be sold.

    A reservation is that in the South Island, parts of Auckland city, and other parts of the country where Treaty settlements have given Maori first and second rights of purchase of State assets, these sell-offs would be a feast for local iwi.

    Thank you Chris Finlayson and Co.

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  23. gravedodger (1,509 comments) says:

    Radio NZ and NZ on Air, both tools of the socialists.

    Animal Products manufactures toxins and poisons such as 1080, for pest control and bio security.
    Strangely their website is suspended.

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  24. wreck1080 (3,723 comments) says:

    @paulL — no, i disagree.

    The fact is the government raised considerably less money than they expected and it beats me how anyone can think this is a good thing.

    If the government had raised the amount they said, then I’d be saying asset sales went well.

    And, investors have lost out too. In this case , it has been a lose-lose situation.

    I respect Brian Gaynor , here are his views…

    Mr Gaynor told Mike Hosking there probably will be support for investment, as the pricing is likely to be more attractive than the previous two energy companies that went up for partial sale.

    But he also says in truth, the programme has not been a success.

    “It hasn’t been successful from the point of view of the Government because it didn’t get the money it expected and it certainly hasn’t been a success as far as investors are concerned because the share price of the companies are all below what they were issued to the public.”

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  25. gazzmaniac (2,317 comments) says:

    What exactly at Kordia is of “some strategic importance for communications”?
    We seemed to do fine before the government bought it.

    Given that a publicly listed company has a virtual monopoly on telephone lines, I don’t see why a publicly listed company couldn’t have a monopoly on wholesale electricity distribution, especially if consenting of new power lines was made easier for third parties. We already have monopoly lines companies delivering the last few km from the substation.

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  26. freedom101 (462 comments) says:

    Still to sell:
    - 51% of the remaining Crown holding in electricity companies
    - TVNZ – used to be worth at least $1.5b, but Bolger didn’t have the guts to sell it. Now worth maybe $400m.
    - KiwiRail – sell it. Would probably involve an $800m write off (thanks Michael Cullen – they should have made him chair so that he could preside over the losses)
    - Sell more of Air NZ, or all of it

    Don’t you notice that only “high performing assets” should not be sold. It’s only a matter of time before a high performing government asset becomes low performing, at which time “it’s not the right time to sell”. There’s no logic in any of this, just politics, and the taxpayer is always the loser. Example: Somehow it’s been clever to hold into TVNZ while it shed $1b in value.

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  27. PaulL (5,872 comments) says:

    @wreck: mutually exclusive results. Either we get more than it’s worth when we sell it (result is that new owners get lower returns than they’d like), or we get less than it’s worth when we sell it (result is that new owners get higher returns than they’d like).

    Gaynor seems to be arguing both that we got paid less than it was worth, and also that the returns once sold are lower than investors expected. Logically that’s not possible. But the key is that he uses expect type words – so we got paid less than we expected (valid question: did we expect too much), and investors got lower returns than they expected (valid question: did they expect too much).

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  28. Andrew61 (3 comments) says:

    My problem is not with the forty nine percent that the government is selling it is with the fifty one percent that it is keeping besides they are not really reducing the size of the government because they are reinvesting the proceeds from the sales into other state owned assets.

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  29. OneTrack (2,572 comments) says:

    “If the government had raised the amount they said, then I’d be saying asset sales went well.”

    And if the hard-left hadn’t done their best to sabotage the floats, NZ Inc., may have got a hell of a lot more for them. Nut no, the economic vandals managed to keep a lot of kiwi mum and dad investors away. The price gained was the result.

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