THE LAST POST?
Why NZ’s Crown-owned assets could be sold off
Let’s cut to the chase. It’s time to sell a raft of Crown-owned assets like national grid operator Transpower, NZ Post, Pa¯ mu (formerly Landcorp), and more, to reinvest proceeds in developing New Zealand’s next generation infrastructure.
Finance Minister Grant Robertson has asked Treasury to develop options for funding the nation’s growing infrastructure gap.
But nowhere in his published statements is any mention of the Mixed Ownership Model, by which the National Government extracted equity from four partial privatisations, or the innovative privatisations that New South Wales is following through selling long-term leases. Top of mind for Robertson is his stipulation that Treasury look at innovative options that will ensure critical infrastructure is funded yet preserve Crown core debt from blowing out beyond existing targets.
Infrastructure Minister Shane Jones and Phil Twyford have indicated a preference for special purpose vehicles (SPVs) along the lines established by the prior National Government with Crown Infrastructure Partners.
These SPVs will bring in investment into long-dated bonds and other avenues which NZ Super Fund, ACC, KiwiSaver funds and iwi will be invited to look at.
But nowhere has there been any mention of the Government also mounting another round of partial privatisations to selldown its 100 per cent holdings in some key companies to, say a 51 per cent control stake, as National did with three state-owned electricity generating companies and Air New Zealand. Or to take a lead from the innovations across the Tasman which have enabled New South Wales to make headway with multiple new infrastructure projects.
Jones has been to Australia to look at how State Governments — especially New South Wales — have made progress.
The MOM programme was completed in April 2014. But since then Australia has moved ahead with privatisations in asset classes, like State energy grids, which still sit in Crown ownership here. For instance, electricity generator Transgrid, which manages and operates the high voltage electricity transmission in New South Wales and the Australian Capital Territory, was privatised in 2015 on a 99-year (100 per cent) lease. It netted $A10.3 billion ($11.3b) and was the first of NSW’s “poles and wires” businesses to go on the market. It was sold to a consortium made up of Canadian pension fund, Hastings (pension fund manager) Tawreed investments Limited, Wren House Infrastructure and Spark Infrastructure. In 2016, Ausgrid, responsible for electricity distribution in Sydney, Central Coast and Hunter region (NSW), was also privatised on a 99-year (50.4 per cent) lease.
This was sold to a local consortium of Australian Super and IFM Investors for A$16.2b. In 2017, Endeavour Energy, responsible for electricity distribution in Western Sydney, the Blue Mountains, the Southern Highlands and Illawarra (NSW), was privatised on a 99-year (50.4 per cent) lease for A$7.6b (1.62 times its regulated asset base).
In 2017, NSW also sold the Land Property Management Authority, which is responsible for land titles, property information, valuation, surveying, and mapping and spatial information in NSW, on a 35-year lease. It was transferred to a private consortium called Australian Registry Instruments which is
Nowhere has there been any mention of the New Zealand Government mounting another round of partial privatisations to selldown its 100 per cent holdings in some key companies.
a consortium largely made up of pension funds.
“Capital recycling” — via the Mixed Ownership Model — was the solution du jour to the infrastructure funding gap under the previous Government. Then Prime Minister John Key and Finance Minister Bill English tried to defuse some of the inane paranoia over National’s partial privatisation plan by promising to put the multibillion dollar revenue from four major share selldowns into a special fund.
The so-called Future Investment Fund was to be used to invest in public infrastructure and other new capital projects. Unfortunately, it was a stretch to call the FIF an “investment fund”. The revenue from the partial privatisations of Meridian Energy, Mighty River Power, Genesis Energy where the Crown sold down its 100 per cent shareholding to a 51 per cent stake, together with that raised from the sell-down of its 75 per cent holding in Air New Zealand, was not reinvested in income-producing assets. It simply funded what was standard Government capex. Arguably putting all the share sale proceeds from the partial privatisations into the Consolidated Fund resulted in the National Government passing up an opportunity to create an investment fund of scale which could reinvest in revenue-producing assets.
The obvious model is Singapore’s Temasek Holdings, an investment company owned by the Singapore Government.
Temasek manages a $SG308b portfolio which includes a 56 per cent stake in Singapore Airlines and 52 per cent of telecom operator Singtel. It has stakes in financial services, telecommunications and media, technology, transportation, industrials, life sciences, consumer goods, real estate, energy and resources and startups.
The Singapore Government established its holdings company in 1974. The initial portfolio was worth $350m comprising shares in companies, start-ups and joint ventures previously held directly by the Government.
By putting the assets into a commercial company, the Singapore Government hoped to free up its Ministry of Finance to concentrate on its core role of policy-making and leave Temasek to own and manage these investments on a commercial basis.
There is no reason why a Kiwi version of Temasek could not be set up to hold the Government’s majority stakes in nominated commercial assets and then run an active portfolio policy which maximised the return to the Crown through dividend streams and capital paybacks when warranted. For instance, a well-capitalised holdings company could have booked profits by selling down Air NZ shares at their peak during the Cullen era and bought more back when they slid. Such a vehicle could also buy shares in distressed NZ companies when private players will not step up to the mark then sell them on to local KiwiSaver funds and other such investors once they have been restructured. If the New Zealand Government had such a fund in place when PGG Wrightson was in strife, it could have injected capital in return for a key stake and kept an asset in NZ Hands. Arguably the NZ Super Fund could have done this. But its risk appetite is governed by the need to grow revenue to smooth future National Super flows.
Temasek’s investment philosophy is to invest in sectors that correlate with the economic transformation of the country, find opportunities where growth is fuelled by the increasing purchasing power of middle income populations, tap the potential of competitively positioned companies, and identify emerging champions. We need a Kiwi version here.