We should sell poor investments

May 19th, 2016 at 12:01 pm by David Farrar

Stuff reports:

The Government has no plans to sell Landcorp despite it being labelled by Deputy Prime Minister Bill English as a “poor investment”.

The government-owned farming company was grappling with a significant drop in its revenue against increasing debt levels caused by the fall in milk price, English told farmers at the DairyNZ Farmers’ Forum at Mystery Creek.

“It’s a very low returning asset, so you have $1 billion tied up in that organisation and it pays taxpayers very little, in some years nothing so it’s a poor investment. However, we’re committed to keeping it.

Why? NZ has thousands of dairy farms owned by farmers. Why does the taxpayer need to own scores also?

Landcorp made a net operating loss of $8.9 million for the half year ending December and its half year revenues were $108.8m, down from $115.1m. The state owned enterprise blamed the fall in revenue on 22 per cent contraction in milk revenue.

Landcorp expected to report a net operating loss of between $8m and $12m for the 2015-16 year, below that of the previous year where a net operating profit of $4.9m was achieved. The report blamed the fall in milk prices as the reason for the loss.

There is a huge opportunity cost having $1 billion tied up in Land Corp. If that was released one could use it to pay for say $1 billion of new schools or hospitals. Alternatively reduce interest payments by $60 million a year or so freeing up that money for health or education spending.

A great environmental idea from ACT

February 29th, 2016 at 11:00 am by David Farrar

David Seymour announced:

ACT Leader David Seymour today proposed selling Landcorp and putting the proceeds into a Sanctuary Trust for applicants who wish to operate inland sanctuaries for native wildlife.

“Landcorp is a business the Government should never have owned and which is responsible for considerable dairy conversion and deforestation.

“The new Trust’s grants would be conditional upon the applicant reaching targets for predator exclusion, biodiversity, and community participation.

“The model is not so very different from what ACT has done with Partnership Schools.  Invite social entrepreneurship, measure performance according to agreed targets, and get out of the way.

“Over 100 years, Sanctuary Trust would radically transform the abundance of New Zealand’s most endangered species.”

This is a great idea. We shouldn’t have a state owned company anyway running farms and the like. But I like the idea of selling Landcorp (which as Seymour notes is often converting land into dairy use) and using the proceeds to fund conservation sanctuaries.

Landcorp has 140 farms and is valued at $1.4 billion. I suspect it might go for even more than that. That would be a huge boost to conservation efforts.

A very nice way of combining fiscal conservatism (asset sales) with environmentalism. This policy would do more for conservation than nay previous Government has done.

Greens maths

February 26th, 2016 at 4:00 pm by David Farrar

Stuff reports:

The Government has struck back at claims that controversial state-owned asset sales have cost more than $1 billion.

Green Party energy and resources spokesman Gareth Hughes said the party had not ruled out buying back Mighty River Power, Genesis and Meridian.

Oh good. A policy of asset confiscation will be just the thing to get National a 4th term.

The latest dividend figures showed the Crown had missed out on $945 million in dividends since listing, with a further $96m spent on the sales programme, he said.

The Greens are confusing foregone income with costs. They are not the same thing, as any stage 1 accountancy student would know. Also it is not foregone income.

Cameron Burrows, a spokesman for Finance Minister Bill English, said the Greens’ comments confirmed they did not understand how business worked.

“The share offer programme has brought valuable private sector discipline to public assets,” he said.

The Government now received more in dividends than it did when it owned the companies outright.

“For example, dividends from Genesis in the decade before the float averaged $32m,” said Burrows.

“This year, as a 51 per cent owner, the Government received $83m in dividends from Genesis.”

Yes, the Government is receiving more in dividends now with 51% than it did with 100%.

The Greens think ownership doesn’t matter and that 100% public ownership would have resulted in the same level of profitability and dividends. The history of the world is that ownership does matter. It is ridiculous to assume this level of profitability and dividends would have occurred under fully public ownership.

Hughes said it would only be a few more years before the total costs eclipsed the money raised.

No the Government is receiving more money now from its 51% share than it did from 100% share. It has more dividends, and reduced debt. A win-win.

National won the 2011 and 2014 elections despite the campaign against partial asset sales. The Greens think that somehow people will care in 2017?

“As ordinary Kiwis open their power bills this winter and see the price rising again, they’ll be asking, ‘how has the power company sell-off benefited me?'”

Electricity prices went up 64% or 7.1% a year under nine years of a left wing Government.

In the last three years electricity prices have gone up only 2.45 a year.

So in summary:

  • Smaller price increases than previously
  • More dividends to the Government
  • Less debt for the Government
  • More dividends for investors such as KiwiSaver funds

Looks like a great success story to me.

The Greens and Labour were criticised for releasing their NZ Power policy just before the companies were listed, which some commentators saw as an act of sabotage.

The resulting fears may have reduced final sale prices by hundreds of millions, meaning a substantially reduced return for taxpayers.

“That’s for commentators to speculate, and play hypotheticals on,” Hughes said.

It was an act of economic sabotage. But it backfired. While some investors were scared off, those who did invest (like me) made a large capital gain after the election – all thanks to Labour and the Greens.

Mighty River Power is trading at a 4 per cent premium to its $2.50 float price, despite touching $3.50 a year ago.

Genesis Energy has also pulled back from last year’s highs, but remains 21 per cent above its $1.55 float price.

Meridian Energy has been the star performer of the three, up 57 per cent from its initial price of $1.50, which investors paid in two instalments.

I purchased in all three. I invested for the dividends but thanks to the Greens and Labour I made a good capital gain also.

Better transparency when a company has private investors

September 14th, 2015 at 10:00 am by David Farrar

The Herald reports:

There is a huge difference between the timing and level of disclosure of the four Government-controlled NZX-listed companies – Air New Zealand, Genesis Energy, Meridian Energy and Mighty River Power – and other Crown entities.

The four listed companies have released detailed results for the June 2015 financial year but a number of the other Crown entities have yet to report and there has been a relatively low level of disclosure by those that have reported.

Air New Zealand and Meridian Energy have published their full annual reports but it will be late October – or even November – before some of the non-listed Crown entities release their full financial statements.

This is one of the benefits of not being 100% Government owned. When you are on the NZX you are forced to publish far more information, and in a much more timely manner.

If Solid Energy had private owners, then their woes would have been obvious far earlier on.

Will Labour oppose these assets being sold?

September 13th, 2015 at 4:00 pm by David Farrar

Stuff reports:

A full independent report of Solid Energy’s assets has been unveiled to creditors, supporting plans to sell down the company’s assets over the next few years. 

The beleaguered state-owned enterprise went into voluntary administration in August, and administrators delivered a full report to the company’s 1500 creditors on Thursday. 

The report, which contains an analysis of Solid Energy’s position, supported Solid Energy entering a Deed of Company Arrangement (DOCA) with its creditors.  

Solid Energy went into a five-week voluntary administration with two “real outcomes” possible – the Deed of Company Arrangement, or liquidation, administrator Brendon Gibson said. 

So will Labour oppose these assets being sold, arguing liquidation instead? A silly notion, but considering they are against any asset sales at all, you have to ask.

The Government owns a number of companies that may be worthless in a decade or less, or face serious competition. They are TVNZ, NZ Post, Kordia, Landcorp etc. We should be selling them while we can – otherwise they might all go the way of Solid Energy.

The huge benefits of the asset sales

September 5th, 2015 at 12:00 pm by David Farrar

Brian Gaynor writes:

Another issue is the partial privatisation of Genesis Energy, Meridian Energy and Mighty River Power and whether taxpayers have had a positive outcome from this strategy.

One of the major arguments against the sharemarket listing of these electricity generators was that the Crown would lose 49 per cent of its dividend income if it sold 49 per cent of these companies.

The figures in the accompanying table tell a different story.

The Crown will receive total dividends of $440 million from the three electricity generators for the year to June, when they are all 51 per cent owned by the Government, compared with $485.8 million two years ago when they were all 100 per cent tax-payer-owned.

Thus the Crown has received $4308 million from the partial sale of these companies yet its dividend income has fallen by only $45.8 million. This is a remarkably positive outcome for taxpayers.


That’s an amazing success story. This is what Labour fought so hard to stop!

The reason for this is that companies usually lift their performance after an IPO, mainly because they are subjected to far more scrutiny. It is somewhat similar to a football team performing much better in front of 50,000 fans compared with at a training run with only a few coaches.

For example, Genesis Energy has gone from one shareholder to more than 55,000 shareholders, Meridian Energy from one to nearly 49,000 and Mighty River Power from one shareholder to in excess of 100,000.

Shareholders matter.

In addition, all 24 directors of these three companies are shareholders, as are a large number of senior management.

Allowing directors and employees a stake in a company is a great way to improve productivity and profitability.

It is patently clear that a sharemarket listing and 51 per cent Crown ownership has been a win-win situation for taxpayers and investors in Air New Zealand, as well as the three electricity generators.

Taxpayers have done really well from this.

137 state owned farms

August 20th, 2015 at 4:00 pm by David Farrar

Stuff reports:

Landcorp owns 137 farms totalling 158,394 hectares, and manages another 226,692 ha of farms. Its livestock holdings are made up of 77,500 dairy cattle, 580,000 sheep, 82,000 beef cattle and 105,000 deer.

It employs 692 staff.

They should all be sold to farmers, unless they are needed for specific purposes such as conservation or treaty claims.

We do not need the Government owning and running 137 farms.

The company had shareholders’ funds of about $1.5. billion against total liabilities of $360 million, according to its half year report to the end of December.

But it made a profit of just $1m in the last six months of 2014, down from $13.4m in the same period in 2013.

If you sold Landcorp for $1.5 billion, then the reduced interest on debt would be around $75 million a year.

English said other SOEs faced challenging issues.

“Post’s business is shrinking, TVNZ has to deal with competition from Netflix and everybody else, the Public Trust, Kordia has a set of broadcast-related assets when technology has moved on.”

Yep. Once TVNZ could have been sold for over a billion dollars. Today you would not get $100 million. The state is not a good owner of commercial companies. Let the state focus on its core responsibilities, and let the private sector own the farms and other businesses.

What did the Labour/Greens power policy cost the taxpayer?

April 9th, 2015 at 12:00 pm by David Farrar

Mark Lister writes in the Herald:

Since listing at $1, Meridian shares have more than doubled, providing investors with a return of more than 100 per cent in less than 18 months. If dividends are included, this return jumps to 125 per cent over the period.

Utility companies such as Meridian are supposed to be predictable companies that offer steady (yet modest) returns. They aren’t supposed to double in price within barely a year the way a high-growth technology share might.

Part of this can be explained by a fall in interest rates over the period, which has made high-yielding shares more attractive and seen investor demand push up share prices.

But with the benefit of hindsight, another key reason for such a strong performance is that they were probably sold a little too cheaply in the first place.

In my opinion, the blame for that rests firmly with the Opposition political parties of the time, Labour and the Greens.

The “NZ Power” reform policy they championed through 2013 and early last year was heavy on emotive rhetoric, and short on detail. Whenever the proponents were quizzed about how it would work or be implemented, there didn’t appear to be many clear answers.

Labour and the Greens seemed to give up on this policy after the last electricity IPO was completed, and it didn’t get nearly as much airtime after that. That adds weight to the view that it was dreamed up only to derail the IPO process.

It was an act of commercial sabotage. They announced it just days before the first sale. It successfully reduced the price people were willing to pay for shares, which meant that the taxpayer lost perhaps a billion dollars due to this policy of sabotage from Labour and Greens.

In that respect, it failed. All it succeeded in doing was creating political and regulatory uncertainty among investors, and reducing the price the New Zealand taxpayer was paid for the 49 per cent of the assets now owned by private investors and managed funds.

The Crown received $1.8 billion (including the 50c a share due shortly) for the 49 per cent of Meridian sold, and that stake is today worth over $3.2 billion. The 49 per cent of Genesis sold down a few months later for $760 million is now worth almost $1.2 billion.

Had it not been for the uncertainty that was created at the time by the Opposition, the IPO sale prices could have been quite a bit higher.

In hindsight, it seems Labour and the Greens might have almost single-handedly contributed to a significant transfer of wealth from the average New Zealander (as the seller) to a much smaller group of people – those who could afford to buy shares in the IPOs.

As someone who invested in all three floats, their policy has made me a five figure capital gain. Thanks Labour and Greens.

While those who bought these shares will be celebrating some excellent returns from investments that should have been relatively boring, maybe the rest of the country is due a belated apology from Labour and the Greens for doing them this disservice.

If Labour and Greens can cost taxpayers one to two billion dollars in opposition, think what they might cost in Government!

Why the state should not own commercial companies

March 11th, 2015 at 3:00 pm by David Farrar

Stuff reports:

Finance Minister Bill English says he still doesn’t know if Solid Energy is viable, raising the prospect of the company collapsing.

The Christchurch-based coalminer is negotiating with a group of banks in a bid to reduce its $320 million debt.

This has delayed the release of its financial results due in late February until it can be certain they “reflect a true and fair picture of the company’s position”.

It followed the Government’s extension of financial support to Solid Energy in 2012, and the company striking a deal with its lenders in late 2013 to effectively write off $75m in debt.

But on Tuesday, English warned that even after 18 months of being regularly briefed on the company’s finances, he was unclear if there was a core business that could be salvaged.

I don’t want my taxes wasted on bailing out state owned companies. I want to choose which companies I invest in, not have the Government do it for me.

We should not own Solid Energy, just like we shouldn’t partially own three power generating companies. They are all commercial enterprises that do not need to be owned by the Government, and present risks to taxpayers if they make bad investment decisions.

The role of Government should be to set the rules for the industry and promote competition – not to own the companies.

Labour breaking their word on asset sales

December 8th, 2014 at 9:00 am by David Farrar

Asset sales are a controversial and often emotional issue. That is why National has been very careful to lay out its policy in advance, and keep to it.

In 2008 National said no SOEs would be sold in the first term, and none were.

In 2011 National said up to 49% of four power SOEs and Air NZ would be sold, and they were (except Solid Energy that collapsed).

In 2014 National said no further sales of SOEs and there are none planned.

Now contrast this to Labour in Christchurch. The Press reports:

It took months of briefings, quiet lobbying, and frank meetings to bring the Left-leaning People’s Choice councillors around to the inescapable truth that some asset sales would be needed to solve the city’s financial woes.

Those meetings happened  right up until late Thursday afternoon, which suggests some councillors were still wavering.

The reason the People’s Choice councillors – Andrew Turner, Jimmy Chen, Pauline Cotter, Yani Johanson, Phil Clearwater, and Glenn Livingstone– were  reluctant to go down the path of asset sales was because they had signed a pledge before last October’s elections to support keeping all significant public assets in public ownership and control.

They didn’t want to be seen to be going back on their word.

They were confident that if they pored over the council’s budgets, cutting expenditure and deferring capital projects, they could achieve the necessary savings without asset sales. 

Alas, it was not to be and on Thursday the People’s Choice councillors reluctantly threw in the towel and acknowledged the funding gap, which has jumped from $900 million to $1.2 billion, was too large to close through savings.

“Our preferred option is not to sell assets, however, the financial position in which the council has been placed requires us to sell assets as one of the number of things we need to do to fill the funding gap,” they conceded in a statement issued through Turner, their spokesman.

This is not true. There is a choice. They have chosen to break their word. I think their policy was stupid and wrong, but they made it.

The People’s Choice is the Labour Party in Christchurch local government politics. In fact most of the PC Councillors had their affiliation on their ballot as (The People’s Choice – Labour).

So the moral of the story is that National has kept its word on asset sales, and Labour once again has not.

Will Christchurch sell assets?

December 1st, 2014 at 11:00 am by David Farrar

The Press reports:

The path to asset sales is likely to be cleared this week as the Christchurch City Council takes steps to raise money for the rebuild.

Councillors are expected to hold a special meeting on Friday to adopt a financial strategy that deals with the potential $900 million funding shortfall the council is facing over the next few years.

Details of the strategy have yet to be made public but Mayor Lianne Dalziel said it would include a range of options to release capital from city-owned assets.

That could sit uneasily with the seven People’s Choice councillors, who all signed a pre-election pledge that promised all significant public assets would be kept in public ownership and control.

Dalziel had studied the pledge and believed councillors would not be breaking their word if they went down the route proposed.

She reasoned that if the council was to sell some of its Orion shares to the neighbouring Selwyn District Council (SDC), which already had an 11 per cent stake in the company, that pledge would still have been honoured.

Likewise, she saw no problem with inviting a strategic partner to buy a stake in Christchurch Airport or Lyttelton Port (LPC), provided the council retained its control.

You mean a mixed ownership model? Have the Council keep say 51%? Use the proceeds to reduce the need to borrow for other assets?

It sounds a very sensible idea. Of course it is the same idea National had in 2011, which Lianne campaigned against. If the Christchurch Council does agree to this policy, I expect Labour to of course condemn them and campaign against their decision!

Labour on assets buy back

August 27th, 2014 at 2:00 pm by David Farrar

Stuff reports:

Labour leader David Cunliffe has refused to confirm if his party is planning to buy back state-owned assets sold by National.

In a confusing exchange with reporters today, Cunliffe first said the party would “be saying more about that before the election.” 

Asked to clarify if voters could expect the party to set out a position before polling day next month, he replied:  “No, I haven’t said that.”

But he later appeared to back-track, saying: “They will certainly know before they cast their vote.”

God knows what that means.

Another story suggests that their bribe to get Winston on board will be $100 million a year to buy “assets”. Basically this means the politicians will be playing the stock market with our money. It won’t even be in a professional investment fund. If Labour win, then Cunliffe and Peters will decide on our behalf to buy shares in maybe Contact Energy, maybe Xero, maybe Kathmandu, maybe Woolworths. It will just be a giant slush fund, run by politicians.

If they think they are so good at playing the sharemarket, they should borrow against their homes, and invest with their own money.

Funding for 14 local roads

June 30th, 2014 at 9:00 am by David Farrar

National announced at its conference, $212 million of funding for regional and local roads. This is additional funding on top of funding from petrol tax, and road user charges, and comes out of the partial sales of the SOEs. So it is swapping an investment in one type of asset (dams) for an investment in anothe rtype of asset – roading infrastructure.

The 14 roads are:

  1. Kawarau Falls Bridge, in Otago
  2. Mingha Bluff to Rough Creek realignment, in Canterbury
  3. Akerama Curves Realignment and Passing Lane, in Northland
  4. State Highway 35 Slow Vehicle Bays, in Gisborne
  5. Normanby Overbridge Realignment, in Taranaki.
  6. Whirokino Trestle Bridge replacement, in Manawatu/Wanganui
  7. Motu Bridge replacement, in Gisborne
  8. Opawa and Wairau Bridge replacements, in Marlborough
  9. Taramakau Road/Rail Bridge, on the West Coast
  10. Loop road north to Smeatons Hill safety improvements, in Northland
  11. Mt Messenger and Awakino Gorge Corridor, in Taranaki.
  12. Port of Napier access package, in Hawke’s Bay
  13. Nelson Southern Link, in Nelson
  14. Rotorua Eastern Arterial, in Bay of Plenty.

The first five are to begin construction this year and finish in 2016/17.

The next six to begin construction within three years.

The last three are to complete the design phase.

The Genesis sale

March 31st, 2014 at 9:00 am by David Farrar

Stuff reports:

Analysts are picking demand will be high for shares in the country’s biggest electricity retailer, Genesis Energy, when its public offer opens today.

The price for shares in the state-owned energy company was announced at $1.55 last night after a bookbuild with institutional investors. The sale would raise up to $736 million for the Crown.

Finance Minister Bill English said already $620 million had been committed through the bookbuild, which was the first stage of the share offer.

At that price the shares will yield a gross dividend of 14.3 per cent, he said.

I wasn’t going to buy Genesis shares as I had purchased Meridian and Mighty River Power shares. But that yield was too attractive.

As the possibility of a clear Labour/Greens Government fades, the chance of their barmy competition destroying policy being implemented fades, and the share prices of the sector shares should all improve.

A Labour MP supports asset sales

March 7th, 2014 at 10:00 am by David Farrar

Stuff reports:

The Government is scotching claims that it has struck a deal to sell parts of Solid Energy to Indian buyers, but says parts of the troubled mining company will be offloaded.

Meanwhile, Labour’s West Coast-Tasman MP Damien O’Connor said he would support foreign buyers investing in inactive West Coast mines, even though he likened it to asset sales.

It’s good to have a Labour Mp say he supports an asset sale, but here’s the problem. Labour have in the past also sold assets – but only failing ones. They support selling a company after it has gone bust or near bust and cost the taxpayers millions. But they don’t support selling a company when it is profitable and taxpayers will get a good price for it. Instead they come up with policies to sabotage the share prices.

Genesis details

February 26th, 2014 at 1:05 pm by David Farrar

Bill English has announced key details:

  • The shares will be priced at the start of the offer period, rather than at the end as occurred with the previous share offers.
  • The Government expects to sell between 30 per cent and 49 per cent of the shares in Genesis.
  • The Government will offer a loyalty bonus scheme to eligible New Zealand retail investors

Also no shares will be offered to US institutions as it creates too much paperwork and hassles under US law.

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 asset sales 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?

Final CIR results

December 19th, 2013 at 2:00 pm by David Farrar

The final results are here.

  • Not Vote 54.93%
  • Vote No 30.30%
  • Vote Yes 14.59%
  • Informal Votes 0.14%
  • Invalid Votes 0.05%

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.

Labour is yeah, nah on SOE buy back

December 16th, 2013 at 3:00 pm by David Farrar

Stuff reports:

Labour leader David Cunliffe has given his strongest indication yet that his party would buy back state-owned assets if it became the Government.

He told Morning Report he “probably will” buy back the assets if Labour wins next year’s election, although stopped short of saying where the money to do so would come from.

Probably is the latest version of “Yeah, Nah”.  Doesn’t Labour has the courage of their convictions to just come out and say “We will borrow five billion dollars from overseas banks so we can forcibly purchase shares in some power companies and an airline”.

The Press on referendum

December 16th, 2013 at 7:35 am by David Farrar

The Press editorial:

There was never any chance the present Government was going to take any notice of the latest one.

In any case a botch-up by the organisers meant it was delayed so that by the time it was held, the programme it was meant to influence was almost over.

Incredible they had such a high proportion of duplicate signatures.

The latest referendum was not strictly a citizens’ initiated one.

Unlike earlier referendums – on the number of MPs there should be in Parliament, on the proper punishment for violent offending, and on smacking of children – it was not led by any great popular groundswell.

Instead, it was largely promoted by the Green Party.

It spent a significant sum organising the petition for it.

Not sure the Greens spent any of their own money on it. They used their taxpayer funded parliamentary budget. The main purpose of doing so was to collect e-mail addresses from the petition.

To the loaded, if muddled question, a clear majority of voters signalled their opposition to asset sales, although not in such large numbers as some had expected.

In all the previous referendums, the vote for the position supported by those promoting the issue has been won by majorities of at least four to one, and in one case (in the poll on violent offending) by nine to one.

In the latest poll the margin was two to one.

Considering the concerted campaign run by those supporting the no-vote, who would have been expecting better, it was not a striking result.

It was a confusing question. Some of those who voted no might want more than 49% of assets sold. Some might want four of the five companies sold, but not all five. And yes the margin was way less than most expected.

Referendums are a crude instrument for influencing public policy. They require simple yes-no answers.

Most political questions are more complex than that and involve trade-offs.

It is for that reason that few countries bother with them. The latest one was a prime example.

The issue it dealt with was decided with the result of the last general election. Whether voters are still happy about that will be properly judged at the next one.

Labour declared the last election was a referendum on asset sales. They were right.

Referendum stats

December 14th, 2013 at 2:00 pm by David Farrar

The breakdown by the 70 electorates is interesting. The turnout by group was:

  • Below 30% – five electorates
  • 30% to 35% – five electorates
  • 35% to 40% – seven electorates
  • 40% to 45% – 14 electorates
  • 45% to 50% – 30 electorates
  • Over 50% – nine electorates

In terms of the no vote, the breakdown was:

  • Below 50% – two electorates
  • 50% to 60% – 11 electorates
  • 60% to 70% – 29 electorates
  • 70% to 80% – 19 electorates
  • 80% to 90% – 3 electorates
  • Over 90% – 7 electorates (Maori seats)

In terms of overall stats:

  • Not Vote 56.10%
  • Vote No 29.48%
  • Vote Yes 14.25%
  • Informal Vote 0.13%
  • Invalid Vote 0.03%

And comparing the results (the desired percentage voting with them) the petitioners got with previous CIRS:

  1. Reform of justice system 91.8%
  2. Firefighters 87.8%
  3. Anti-smacking law 87.4%
  4. Size of Parliament 81.5%
  5.  Asset Sales 67.2%

So it is the closest result of any CIR. No other CIR was below 80% and this was below 70%.

Much higher yes vote than I expected

December 14th, 2013 at 9:07 am by David Farrar

I was expecting the yes vote in the referendum to be around 15% to 20%. I’m amazed it was 32.1% and the no vote won by 2:1 rather than 4:1.

There wasn’t a single party or organisation campaigning for a yes vote. On the other side Labour, Greens and the unions spent hundreds of thousands first promoting the petition and collecting the signatures and then campaigning for no votes.

There was little reason for yes voters to vote. I actually never got around to it. You knew what the result would be, and more to the point you knew that the referendum was pointless as three of the five companies have already been sold down to 51%.

On the other side there was a lot of reason for a no voter to vote no – it was a way to punish the Government, and try and stop any further sales.

I honestly thought they’s get over 80%, maybe as high as the anti-smacking vote at 85%. Instead they got 67.2% and turnout was well under 50% at 43.9%.

Sure it is still an official victory for the no vote, but far from the crushing blow they wanted – especially considering that they spent hundreds of thousands of dollars on getting this referendum. How can Labour and Greens demand National implement the result of a 67% referendum result when they remain 1000% opposed to implementing the results of the 85% referendum result on smacking law.

But hey, if Labour thinks the referendum result trumps the last election result, I look forward to their clear policy pledge they will buy back every share sold.

Yeah, Nah.

Why NZ Post is struggling – Kiwibank!

December 7th, 2013 at 7:39 am by David Farrar

Brian Gaynor writes at NZ Herald:

Why does New Zealand Post continue to flounder while Deutsche Post, the German postal provider, has significantly outperformed the Frankfurt sharemarket in recent years and Royal Mail, the UK mail operator, has just had an extremely successful IPO?

A brief assessment of the three post providers shows that the two European companies have clear e-commerce driven parcel and logistics growth strategies whereas New Zealand Post has been adversely affected by the requirement to contribute substantial capital to Kiwibank, its 100 per cent owned subsidiary.

Kiwibank has never paid a dividend, off memory.

Royal Mail’s core operation is the collection, sorting, transportation and delivery of parcels and letters in the United Kingdom. This service operates under a “one price goes anywhere” principle on letters and parcels within the domestic market.

It also owns GLS (General Logistics Systems) which operates a substantial parcel business in 22 European countries.

Royal Mail, like Deutsche Post, has taken advantage of the huge increase in online purchases by individuals and businesses.

That is the future. Not letters.

Royal Mail’s share price closed at 5.96 on Thursday giving IPO participants a capital gain of over 80 per cent and resulting in a sharemarket value of 5.9 billion.

Austrian Post, PostNL in The Netherlands, bpost in Belgium and SingPost in Singapore are also listed on stock exchanges.

Unfortunately the story in New Zealand is far less optimistic even though New Zealand Post reported net earnings, before one-off gains from the sale of assets, of $45.4 million for the June 2013 year. The problem is that the group’s core postal services reported a net loss of $51.5 million for the latest twelve month period (see table).

The focus is on Kiwibank:

No one would argue against the importance of parcels but what investments has NZ Post made in this area? What has it done to capture the e-commerce trade?

For example, parcels were mentioned only thirteen times in the group’s 2011 annual report whereas Kiwibank was referred to 197 times.

One of the problems with NZ Post is that Kiwibank is soaking up most of the group’s surplus cash and seems to be squeezing out the traditional postal services.

A possible solution:

The reality is NZ Post is asset rich but cash poor because Kiwibank, the group’s best performing operation, doesn’t pay a dividend and will require $100 million of additional capital. As a consequence NZ Post does not appear to have invested heavily in its parcel business, which has the best long-term postal growth prospects.

Thus the company has two choices. It can either focus on Kiwibank and let its postal operations decline with more and more branch closures and staff layoffs.

The other alternative is to partially monetise its Kiwibank shareholding by selling a minority stake to the Crown, a trade buyer or through an IPO. This would give NZ Post cash to invest in its parcel business, fund its ongoing commitment to Kiwibank and pay a higher dividend to the Crown.

Sadly, will never happen.

Herald on Air NZ sale

November 19th, 2013 at 2:00 pm by David Farrar

The NZ Herald editorial:

According to the Labour Party leader, David Cunliffe, the timing of the Government’s selldown of shares in Air New Zealand is arrogant. Describing it as astute would have been far closer to the mark. Shares in the airline have been trading at a five-year high and investment advisers have voiced their enthusiasm for them. What better time could there be for the Government to reduce its holding in the national carrier from 73 per cent to 53 per cent?

That is a good question. Unless you believe that 73% is the exact right amount of shares for the Government to hold. Which is like believing in astrology.

One can make a principled case for 100% or for 51% (or for 0%) but to insist it must be 73% is daft.

The selldown has been criticised because it is being done just before a referendum on the part-sale of state assets. That complaint is misplaced. The focus of the Government’s mixed-ownership model strategy and, therefore, the referendum has always been the part-sale of the state’s three power companies, not an airline that the government acquired essentially by accident. Air New Zealand is very much an ancillary part of that strategy.

The referendum question also includes Solid Energy. It is a very badly worded question. Because if you think the Government should sell off the power companies and Air NZ, but should not sell off Solid Energy (because we won’t get 10 cents for it) then you should vote no I guess. Likewise if you think the Govt should sell more than 49% of any of the five companies, then again you arguably should vote no.

Green co-leader Russel Norman has gone so far as to suggest the selldown could lead to reduced regional services or higher fares.

I wish there was a competition for the most financially illiterate comment of the year, so I could nominate it.