Almost a year after the last (official) state asset sale, David Hargreaves has a look at how the investors - and the taxpayers - have fared

By David Hargreaves

Well, was it worth it?

We are now approaching a year since the last of the Government's official asset sales took place, with the April 2014 share float of 49% of Genesis Energy. I use the term "official" when describing the last of the asset sales, since the forthcoming flogging off of state houses will be categorised by some as an asset sale - though obviously this is not the Government line.

To refresh some memories, the Government between 2013 and 2014 sold 49% of state power companies Genesis, Mighty River Power and Meridian Energy. It also sold down its stake in Air New Zealand from around 73% to about 53%.

Despite some very early suggestions from Prime Minister John Key that the asset sales could raise as much as $10 billion, followed by an official target of $5 billion to $7 billion, the sales actually raised about $4.7 billion at a cost of about $120 million.

The transition of state miner Solid Energy from apparently successful, vibrant, thrusting, resources giant to financial basketcase was no help. The Government's original $5-7 billion target included a sale of Solid Energy, something which is not now going to happen till it's a very cold day in a particularly hot place.

Also, clearly unhelpful, was the Labour-Greens political plan to dismantle the current electricity market. This plan was unveiled by the two main opposition parties just after the details of the first of the SOE floats, that of Mighty River Power (MRP), had been announced.

While such a plan didn't really ever seem that likely to get off the ground - even at that point the chances of a Labour/Greens government after 2014 looked somewhere between zero and zip - you have to assume that at least some would-be investors were put off.

When Kiwis were asked to register expressions of interest in buying the MRP shares (this before the Labour/Greens plan was hatched), some 440,000 of them came forward. Ultimately only 113,000 signed cheques for shares.

A cluttered picture

Also cluttering the picture at around that time was the threat of closure of the aluminium smelter at Tiwai Point. Meridian, which was the next power company to be floated in October 2013, was directly affected as the supplier of electricity to the smelter. But any closure of the electricity-sucking smelter would have a huge impact on the whole energy sector in this country.

So, anyway, with all this as background, the asset sales raised nearly $1.7 billion from MRP, nearly $1.9 billion from Meridian, $733 million from Genesis and $365 million from Air New Zealand, as tallied up by Treasury. 

The Government, of course, hid any sense of disappointment about the final amount raised and has happily trumpeted reinvestment of the proceeds through its Future Investment Fund.

I willingly lay my cards on the table and say that I was opposed to this particular asset sales programme and I think history will judge it as a big mistake. I outlined my case on this back in October 2013.

It is still much too early to judge the success or failure of the asset sales programme - but worth having a look at where we are right now anyway in terms of dollars and cents.

The early signs are that the investors are doing okay, thanks very much, while the taxpayer - maybe not so much.

In the end the number of people investing in the asset sales was only in the low hundreds of thousands (hard to come up with exact figures because there will undoubtedly be double-ups).

If the Government had managed to get a rather wider spread of investors than that - such as the 440,000 who originally said they were keen to buy MRP shares - then the argument could be that everybody benefits from the power companies performing well on the sharemarket.

In the event it is looking like a reasonably select few, while the rest of the public retain an interest in the companies as a taxpayer - but of course don't directly benefit from dividends, nor do they benefit from rising share prices.

The figures are up to close of trade on Tuesday, February 24, 2015. The table compares the per-share sales price of each of the assets with the current share price. To try to give some meaningful comparisons I have also included the value of the NZX 50 index, which measures the overall performance of the top 50 companies, for each of the days on which the three power companies were listed on the NZX; namely May 10, 2013 for MRP, October 29, 2013 for Meridian and April 17,2014 for Genesis.

Remember that the Meridian shares are partly paid - that is there was another 50 cents per share to be paid by investors for them 18 months after the initial float. With a 114% gain in share price in the meantime I don't think too many people are going to mind.

It is also worth noting that comparing the index with share prices is not quite apples with apples. The index figures given are for the "gross" index, which includes the impact of dividend reinvestment.  So, what that means is that the raw share price figure - not including dividends - should not compare favourably with the index figure, which does.

But what you can see is that even without dividends all of the state assets that have been sold have comfortably outperformed other top companies in terms of share price.

If we look at the dividends, well they haven't been bad either, given that the power companies had a strong incentive to ramp up the dividends in order to attract investors. Since the time they were sold - bearing in mind they were all sold at different times between 2013-14 - the companies have paid or declared to shareholders the following dividends: Genesis 14.6 cents a share, Meridian 19.21c, MRP 31.3c and Air New Zealand 26.5c.

To put it into slightly more meaningful language, since sale or listing, the shares that were sold have paid out the following dividend totals: Genesis $69 million, Meridian $241 million, MRP $211 million and Air New Zealand $59 million.

$3 billion of value lost

To put it another way again, if we tally up those figures, it means the Government (IE we the taxpayer) have foregone $580 million worth of dividends through sale of the shares. Good for the investors though!

And looking at those share prices: At the original sale prices the holdings sold were worth in total nearly $1.7 billion for MRP, nearly $1.26 billion for Meridian (which excludes the $630 million yet to be paid by shareholders), $733 million for Genesis and $365 million for Air New Zealand.

Based on the closing prices of February 24, 2015, the same holdings would be worth: $1.04 billion for Genesis, $2.69 billion for Meridian, $2.26 billion for MRP and $560 million for Air New Zealand.

Collectively, therefore, the shareholdings sold are now worth about $2.5 billion more than the New Zealand taxpayer, courtesy of the crown, received for them. Add in the $580 million worth of dividends and that is north of $3 billion of value that the taxpayers are not seeing thanks to the asset sale.

Now, the Government would obviously argue that just by having private investment, those businesses are now operating better and are worth more, hence the increase in value in the shares.

Furthermore, the Government would also say that the 50-odd percent of each of those businesses that is still owned by the taxpayer is now worth similar amounts more (since the rise in share price also benefits the crown shareholding) and that this would not have happened without private investment.

But me, I'll stick my neck out and say we sold those assets pretty darn cheap and that our $4.7 billion return is looking reasonably scant.

Given the uncertainties, particularly in the power sector, that existed in 2013-14, the Government would have been far better to wait to sell the assets. But philosophical dogma ruled the roost. And now taxpayers miss out on the value that's being added subsequently to those assets. Good for the investors though!