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Q+A: Shane Taurima Interviews Tony Ryall

Q+A: Shane Taurima Interviews Tony Ryall
Government keeps door open to delaying asset sales: “Let me be quite clear here. If the government doesn’t get a good price, the government isn’t going to sell.”
Ryall won’t say what “a good price” would be, but confirms he has received advice on what that price should be.
Not a cent of the profits from Mighty River Power sale will go to pay down debt: “All the proceeds in Mighty River Power are going to avoid us having to get more debt.”
Changing ownership of power companies won’t make any difference to power prices or job numbers.
No guarantees of New Zealand ownership of the 49% after float: “…while we’re going to aim to have 85% to 90% of these companies New-Zealand owned at float, what happens after that is really determined by the individual New Zealand shareholders and entities.”
Assets won’t be sold “to the highest bidder”, as government seeks to keep assets in New Zealand hands: “There is a tension, a trade-off.”
Ryall concedes government would have got more if it had sold to a single buyer, but National wouldn’t have received the support it did at the election if it had done that.
“…we would not have the mandate that we got at the election if we had proposed that it would be a 49% sell-off to one shareholder.”
Ryall won’t endorse Treasury’s valuation of Mighty River Power: “We’re going to have to wait to see what comes out from the sales process.”
Mighty River Power sale planned for late in third quarter – not in the next few weeks. Won’t start creating register of interest in shares until August or September.
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                        Thank you, minister, for joining us this morning.
TONY RYALL – State-Owned Enterprises Minister
                        Yeah, good morning.
SHANE           Let’s start off. Do you have a sale date for Mighty River Power?
TONY             Well, the government’s been quite clear that we’re looking to start the sales process in the third quarter of this financial year, rather this calendar year, and as soon as we make a decision to proceed with sale, we’ll let you know, and we’ll set out the timeframe for everybody to see then.
SHANE           So anytime from next month to September - could it happen in a couple of weeks’ time?
TONY             No, well, it’s not going to happen in a couple of weeks’ time. Over the next month or two, the government will make a decision about whether to push the go button, provided the market’s right, that there’s sufficient interest, that we’ll get a good price for the New Zealand tax payers.
SHANE           So we’re looking about August, September.
TONY             Yeah, around about that time, we’d be looking to make a decision, and then we start what we’re calling a pre-registration process, which, for a number of weeks, people who want to participate can register that they’d like to receive a copy of the prospectus. And then we’d go into the full sales process after that.
SHANE           Given that it’s so imminent, do you have any idea what the share price will be?
TONY             Well, no. That will be set by what we find from our various putting together of various offers and expressions of interest and the market itself. So that’ll be much closer to the time that people will get an idea of what the actual issue price is, and of course the market price will be indicated once they’re floated on the New Zealand Stock Exchange.
SHANE           Because you want Mum and Dad investors to buy these shares, do they have to be reasonably priced or low priced, indeed?
TONY             Well, they have to be a fair price to be attractive to as many New Zealanders as possible. And that’s one of our major objectives. While we’re trying to make sure that we can control our nation’s debt into the future, we also have to make sure that we provide opportunities for New Zealanders to invest in these businesses. So we do have to make sure it’s a good price. I’m sure it will be if everything comes together. That’s part of the programme. And New Zealanders will be able to see that information when the prospectus and the pre-registration information is available.
SHANE           Treasury estimates that Mighty River Power is worth $3.75 billion. Now, 49% of that is $1.8 billion. Do you expect to get that much?
TONY             Well, look, we’re going to have to wait to see what comes out from the sales process. I’m not going to speculate what the value is-
SHANE           But is that a fair indicative area that you’re looking at?
TONY             Well, that’s certainly the price that the Treasury has indicated that is the value of the company. What comes out from the actual sales process comes out from the sales process. I can’t speculate on what the value of the business will be. What I can tell you, though, is the government’s got a lot of objectives here, not only to control debt, but also to make sure we have widespread New Zealand ownership and that there are more investment opportunities for New Zealanders. Underscoring all of this, of course, is that the government retains 51% control.
SHANE           So does all of that mean a lower price?
TONY             Uh, look, in terms of a lower price, I’m not speculating on what the price will be. But the value for New Zealand is important. Certainly, if the government had decided to adopt the approach that we saw in the ‘80s and the early ‘90s, where the government was just going to sell the 49% stake to the highest bidder - maybe 49% to an overseas bidder - we might get a better price than we would if we weren’t going to have a float on the sharemarket. But I don’t think we’d get the support at the election that we got if we had proposed that. So this is not like the asset sales that we’d seen in the ‘80s and early ‘90s, which was selling them off to whoever the highest bidder is. This is a different approach. This is more of the approach that you saw with Auckland International Airport, where the government is making it a priority to get as many everyday New Zealanders as shareholders as we possibly can.
SHANE           So it’s not about debt? You’re sacrificing?
TONY             Uh, it’s certainly about debt. You know, New Zealand’s debt is currently $52 billion, $53 billion. Expected to go to $72 billion in the next three years. That’s getting to a level that we’re uncomfortable with. That’s the reason why we want to sell a minority stake in these assets, free up some cash that can then be invested in the other priority assets that New Zealanders want in the future.
SHANE           But you’re not going to get as much as you could.
TONY             Oh, we’ve been upfront about this all the time. There is a tension, a trade-off, between selling the whole lot, the 49% to one investor, like they did in the ‘80s and the early ‘90s, versus trying to make sure we have widespread New Zealand ownership. We’ve always been upfront about that. There is a tension. But we would not have the mandate that we got at the election if we had proposed that it would be a 49% sell-off to one shareholder. What New Zealanders understood very clearly was that we had a priority to have as widespread a New Zealand ownership as possible, and of course there’s a price trade-off in that.
SHANE           I’m interested to talk about the Mum and Dad investors, because say come September, Mum and Dad, they buy shares for $5 a share. A couple of years down the track, an overseas buyer or investor comes along and offers them $20 a share. Is there anything stopping Mum and Dad investors from on-selling those shares?
TONY             No, there’s not going to be anything to stop everyday New Zealanders from having choices about who they sell their shares to. What’s important to remember is that the government retains 51% control whatever happens, with a limit of 10% on any other shareholder. But we’re not proposing restrictions that will stop everyday people from choosing how they might sell their shares or who they sell them to.
SHANE           So you’ve just stressed New Zealand ownership, but you can’t do anything about it?
TONY             Well, it’s for the people who own the shares to make those choices. But if you look at what probably is the closest to a mixed-ownership model that many people would be aware of, and that’s the Port of Tauranga, that’s a very interesting experience there. 55% of the Port of Tauranga is owned by local government, sort of like government interests, and 45% is on the sharemarket. What we’re finding with the Port of Tauranga is that it is in fact the New Zealanders who are buying out the overseas shareholders. In that mixed-ownership model type company, the New Zealand shareholding is increasing. So I think that over time, New Zealanders will see the benefits of the mixed-ownership model programme. One of the key objectives is to increase the number of investment opportunities for individuals, KiwiSaver, super funds, government financial institutions. So while we’re going to aim to have 85% to 90% of these companies New-Zealand owned at float, what happens after that is really determined by the individual New Zealand shareholders and entities about what they do.
SHANE           Interesting you talk about the Port of Tauranga, because we only have to look across the ditch at Queensland Rail as an example. 35% of their shares have gone offshore. Couldn’t that happen here?
TONY             Well, it depends on what everyday New Zealanders do. But in the end, 51% remains in New Zealand control - that’s the government - with a 10% cap on any other shareholder. I think if you look at the experience with Port of Tauranga, you’re seeing the New Zealanders buying out the overseas interests. Now, the key thing here is to make sure that we have those opportunities for New Zealanders, and when these companies float, the government has the power to decide what classes of shareholders get the shares, and we’re making it clear that we expect 85% to 90% of the companies at float will be owned by New Zealand interests.
SHANE           But it sounds like that the Prime Minister isn’t prepared to take that risk. He’s quite keen, he’s quite supportive of introducing some type of loyalty scheme. Do you support such a scheme?
TONY             Well, we’re certainly going to look at it, and there are some benefits in such an approach, because it does send a very clear message to New Zealanders that the mixed-ownership model programme is about them. It is about everyday people having an opportunity to invest in a wider range of companies on the New Zealand Stock Exchange. Over the next month or two, we’re going to be looking at this experience in Australia and elsewhere and the use of loyalty shares as an incentive for ordinary investors to participate, and we’ll make some decisions on those much closer to the time of the float.
SHANE           So why is there nothing around a loyalty scheme in the bill currently?
TONY             Because in terms of the allocation of the shares and the way that the offer is put together, that is a decision that the government makes closer to the time of the float. It’s not the sort of thing that you’d put in the legislation. But our government has been quite upfront and clear that we expect 85% to 90% of these companies at float to be owned by New Zealanders.
SHANE           You’re talking a lot about New Zealand ownership, but there’s nothing - nothing - that protects New Zealand ownership in the bill, is there?
TONY             Oh, there is. There is definitely stuff in the legislation, and that is 51% of the shares will continue to be owned by the New Zealand government, and there’ll be a restriction of 10% of any other shareholder. New Zealand ownership is being enshrined in the legislation - 51% New Zealand government - and in the constitution of the companies. So don’t for one minute think there’s no restriction on that. It’s in the law. 51% government ownership.
SHANE           So if the government is going to have 51% and have control, does it really matter who owns the other 49%, when you’ve got that target of keeping 85% to 90% of all shares here in New Zealand? Does it really matter who owns the other 49%?
TONY             Well, that target is with respect to the float. It’s up to New Zealanders who will get these shares to decide what they want to do with them. We think that the whole mixed-ownership programme is about providing more opportunities for New Zealanders to invest in the New Zealand sharemarket, in the sorts of businesses that many people are interested in investing in. So I think that all stacks up to a very, very sensible programme which is about helping to control our country’s debt and get the country through the difficult economic times that we’re facing.
SHANE           You’re talking about debt again. I’m interested to know - the money that you’re going to get from Mighty River Power, how much of that is going on debt?
TONY             Well, the programme is about controlling debt. What we know is we started in-
SHANE           So nothing? Do you have a number for us? How much of Mighty River Power is going on debt?
TONY             Well, let me tell you what’s happening, because all the proceeds in Mighty River Power are going to avoid us having to get more debt-
SHANE           So nothing specifically on debt? Just to control the debt, is that right?
TONY             That’s right. Because at the moment, we’re going from $8 billion when we started in 2008. The debt’s now around $52 billion. We’re expecting to be at $72 billion in another three years’ time Now, to help keep us at that level, we are selling these assets partially over the next three to five years. Those proceeds are being put into the future investment fund which will fund investment in other important public assets - new schools, new roads, new hospitals-
SHANE           But just to clarify, just to get a very clear answer from you, none of the proceeds will actually go to pay off debt.
TONY             All the proceeds go into avoid having to borrow more debt, because we’re actually going to be borrowing more money in the next three years, and the sale of these assets allows us to avoid having to borrow more money.
SHANE           Can we talk very briefly about the social costs, because groups like Grey Power as an example, and we saw a march down in Dunedin yesterday. About 1000 people out there protesting against this. They say it’s all about making profits. Can you guarantee that as a result of these sales we won’t see, for example, power prices going up?
TONY             Look, I don’t think there’ll be a minister in any government that will promise the price of power…
SHANE           So that’s a no?
TONY             …won’t be going up. What I can tell you, though, is that what’s more important here is not the ownership of the companies; it’s the competitive environment in which they operate in. In about a six or seven month period, about 300,000 New Zealanders have changed power companies. Now, that tells you we’re in a competitive-
SHANE           But we’re also told, though, that mixed ownership does matter. Private companies charge, on average, 3% more than state owned.
TONY             I’ve seen those numbers that have been quoted by the Green Party in that case, and what’s clear in that is there are a number of private companies that are cheaper than the state companies. What is important is that it doesn’t reflect the different types of customer base. So power companies have more rural customers. Others are more focused in the urban areas.
SHANE           So no guarantee on power prices going up. Sorry, we have to start moving on. But what about job losses?
TONY             Well, no minister is going to guarantee on power prices. I didn’t see any minister in the previous government promise that when they were 100% owned, power prices weren’t going up. They went up 72% under the previous Labour Government. Now we’ve got a more competitive power environment. There was a 14% increase in power prices between 2008 and 2011. We’ve now got a situation in New Zealand where hundreds of thousands of people are switching power companies all the time, and that indicates a much better competitive environment.
SHANE           Can I just ask you briefly about job losses, because Queensland Rail, and we’ve been talking about Queensland Rail. They laid off 600 workers last year. They’re planning another 500 workers this year. Could we have job losses here as a result of these sales?
TONY             Well, that depends on the companies. The companies are operating in a competitive environment. They look at their staffing numbers all the time. I think that would happen whether they were 100% owned by the government or 51% owned by the government. They’ll always look at their cost structures and look to get those as competitive as possible, because they’re in quite a competitive market. When you’ve got 300,000 customers in about a seven-month period swapping companies, there’s a lot of competition out there.
SHANE           Is this a good time to sell? Given what’s happening around the world, how confident are you that this is a good time to sell and that you’re going to get a good price?
TONY             Well, let me be quite clear here. If the government doesn’t get a good price, the government isn’t going to sell. And we’ve been upfront about that from January 2011, from when we first announced this policy.
SHANE           So can I ask you, what is a good price?
TONY             Well, we’re getting advice on the price that we expect to get, and if we don’t get the price that’s reasonable, we’re not going to sell.
SHANE           So you’re not going to tell us what that price is?
TONY             Well, why would we do that? Because this is a competitive environment, and we’re going to have people seeking to buy their shares-
SHANE           Because it’s publicly owned. It’s our company, isn’t it?
TONY             Uh, but you want us to protect the value of those shares so we get best value, and so we don’t want to release any of that commercial and competitive information. But let me reassure you that unless the government gets a good price, we’re not going to sell these shares.
SHANE           Minister, we will leave it there. Thank you very much for your time this morning.

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