Bill English, Tony Ryall
15 December, 2011
Next steps in mixed ownership programme
The Government has confirmed the next steps in its mixed ownership programme to offer New Zealanders minority shareholdings in four state-owned energy companies and Air New Zealand.
Cabinet has agreed that Mighty River Power should be the first company prepared for an initial public offering (IPO), most likely in the third quarter of 2012, subject to market conditions, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall said today.
“Cabinet has taken initial decisions to proceed with the mixed ownership programme, as we promised New Zealanders before the election,” they said.
“The Government has previously set a number of tests – including retaining majority Government control and significant participation by New Zealand investors who will be at the front of the queue for shares. The Treasury confirms these tests can be met.
“The programme is likely to involve a number of IPOs spread over the next three years or so. Their timing will depend on market conditions and company circumstances.
“Ministers’ initial decisions will allow Treasury to proceed with preparing the mixed ownership programme. More detailed decisions about the precise structure and timing of the programme, including the Mighty River IPO, will be made early in 2012.”
This week, Cabinet has:
- Agreed in principle to proceed with the mixed ownership model.
- Agreed that Mighty River Power should be the first company prepared for an IPO, most likely in the third quarter of 2012, subject to market conditions.
- Agreed that decisions about share allocations will be made early next year during the design phase of the IPO.
- Agreed to consult with Maori in early 2012.
- Agreed that legislation will be required to support the mixed ownership programme – including removing the four mixed ownership energy companies – Mighty River Power, Genesis, Meridian and Solid Energy - from the State Owned Enterprises Act.
“Our advice is that Mighty River Power is ready to go to the market.
“We will provide more detailed information on this IPO – including how widespread New Zealand ownership will be achieved - when detailed decisions have been made in early 2012,” Mr English and Mr Ryall said.
“This will include releasing supporting documents when this no longer prejudices the commercial position of the IPO.”
The ministers reiterated the Government has made three clear promises to New Zealanders about mixed ownership companies:
- The Government will retain at least 51 per cent control.
- New Zealanders will be at the front of the queue for shares and ministers expect New Zealand ownership will be around 85-90 per cent.
- No shareholder other than the Government will be able to own more than about 10 per cent.
“The mixed ownership programme involves less than 3 per cent of taxpayers’ total assets of $245 billion, which will grow by another $22 billion over the next four years,” Mr English and Mr Ryall said. “So this is about how we pay for increasing those assets – it’s not about reducing them.
“The alternative is a lot more debt, which would need to be borrowed on nervous global financial markets at a time when many other countries are struggling with too much debt.
“Mixed ownership is a win-win. With about $100 billion sitting in term deposits, along with many billions of dollars more in KiwiSaver funds, other investment funds and iwi investments, New Zealanders are placed strongly to invest in the mixed ownership companies.
“It’s an opportunity for New Zealanders to invest in something other than housing or finance companies. And it will free up taxpayers’ money so the Future Investment Fund can invest in priority new assets like schools, hospitals and irrigation, without having to borrow from overseas lenders.
“It will also improve the efficiency of the mixed ownership companies, while the Government retains majority control.”
Treasury background document available at:
MIXED OWNERSHIP PROGRAMME – Qs AND As
Why is Mighty River Power the first Initial Public Offering?
Mighty River Power is well positioned to take to market. It is also big enough to offer a significant volume of shares to the investing public, while the Government retains a majority stake of at least 51 per cent.
What will happen next?
Cabinet has made several decisions that will kick off the process. It has agreed in principle to implement legislation to allow the mixed ownership programme to proceed, and Treasury has been given the go ahead to start advertising for advisors to run the IPO process. Cabinet has also announced the Government will consult with Maori early in 2012. We will make final decisions on timing and other details regarding the Mighty River Power offer early next year.
What legislation will be needed to implement the programme?
Legislation will ensure the Government retains a minimum holding of 51 per cent in all mixed ownership companies and that no other shareholder will be allowed to hold more than around 10 per cent of each company. The four energy companies, Mighty River Power, Genesis, Meridian and Solid Energy will be removed from the State Owned Enterprises Act, and there will be other amendments to implement the mixed ownership programme.
What restrictions have been placed on foreign investors owning these companies?
The Government will always retain at least 51 per cent of the mixed ownership companies on behalf of all New Zealanders. In addition, no other shareholder will be able to buy more than 10 per cent in all cases. No further decisions have been made at this stage, but ministers expect around 85-90 per cent New Zealand ownership of the mixed ownership companies.
What guarantees can you give that foreign investors won’t buy large stakes in these companies after the IPOs?
Firstly, no shareholder – other than the Government – can hold more than 10 per cent of any mixed ownership company. There will be some foreign ownership of these companies, but all the evidence points to the vast bulk of the shares remaining in New Zealand hands. Experience from previous initial public offerings by the Government - including Contact Energy and Auckland International Airport - suggests that widespread and substantial New Zealand ownership can be achieved and maintained across the SOEs. KiwiSaver funds, other investment funds and iwi are all traditionally longer-term investors.
How will you ensure that New Zealanders are at the front of the queue for shares?
The Government will control the allocation of shares and decisions supporting that will be considered early next year.
How confident are you that small New Zealand shareholders will buy shares?
We want small New Zealand investors to buy the vast bulk of the shares and ministers expect that around 85-90 per cent of the mixed ownership shares – including the Government’s controlling stake – will be held by New Zealanders. Many investors lost money in collapsed finance companies and this will be an opportunity to invest in this country's future. Scoping studies show a significant proportion of experienced shareholders are keen to buy.
With about $100 billion sitting in cash deposits, along with many billions of dollars more in KiwiSaver funds, other investment funds and iwi investments, New Zealanders are strongly placed to invest in the mixed ownership companies. Selling shares through IPOs will enable all New Zealanders to apply for shares.
Why are you announcing the next steps before Christmas?
Officials need to appoint advisors and lead managers to start the due diligence process now so they can meet timeframes for the sales programme. The Treasury will be using open, competitive appointment processes which can take some time to complete.
Why are you pressing ahead with the mixed ownership programme when a number of New Zealanders have voiced reservations about it?
The National-led Government has been open and transparent about its proposal to extend the mixed ownership model – used successfully for Air New Zealand for almost a decade – to four state-owned energy companies. We’ve been talking about this issue since January and we said we would put this and other policies to voters at the election, before proceeding if we were re-elected. That’s precisely what we’re now doing.
We believe the mixed ownership programme, which is quite different to the state asset sales of the 1980s and 1990s, will be popular among New Zealand investors, who will be at the front of the queue for shares.
What will you be consulting with Maori about and how long will the process take?
The Government intends to consult with Maori on the mixed ownership model policy early next year - before introducing legislation and the first IPO. It will take place at a series of meetings across the country. Consultation will not cover specific investment opportunities.
Will Maori enjoy any special treatment in the sales process?
The Government has promised New Zealand investors will be at the front of the queue by providing them with priority share allocations. That promise applies to all New Zealand investors – including Maori.
When will New Zealanders be able to buy shares?
The Mighty River Power IPO is most likely to happen in the third quarter of 2012, subject to market conditions. Cabinet will consider that and other details around the structure and timing of the mixed ownership programme in early 2012.
How much do you expect from the Mighty River Power share sale?
We’ve said we expect between $5 billion and $7 billion over three to five years across the whole mixed ownership programme. In terms of Mighty River Power, we want to get a good deal for New Zealand investors – and for New Zealand taxpayers – and that depends on advisors completing work in the New Year, once they are appointed.
Given, the turbulent situation on overseas financial markets, why go ahead with a mixed ownership programme?
The precise timing of individual IPOs will depend on market conditions. More broadly, mixed ownership will help lift New Zealand’s economic performance by increasing the incentive for the SOEs to perform well. It will also reduce the amount of extra debt the Government will need to borrow from foreign lenders to pay for new assets, at a time when global markets are increasingly worried about lending to heavily indebted countries.
Are there examples where mixed ownership already applies?
Yes, there are many examples overseas and several in New Zealand.
- Air New Zealand - the Government owns a majority 74 per cent in Air New Zealand and other investors own the remaining 26 per cent.
- Port of Tauranga - 55 per cent is owned by Environment Bay of Plenty on behalf of the people of the Bay of Plenty, and the rest by other investors. New Zealand investors own more than half of the free-trading shares and their equity is increasing.
- Horizon Energy - 77.3 per cent is owned by the Eastern Bay Energy Trust on behalf of people in the Bay of Plenty, with 13 per cent owned by South Island-based Marlborough Lines and the rest by other investors.
- Vector - 75.1 per cent is owned by the Auckland Energy Consumer Trust on behalf of the company’s electricity customers in Auckland, Manukau and parts of Papakura. The remaining 24.9 per cent is owned by individual shareholders and institutions.