Forging ahead with asset sales

The not unexpected announcement by the Government on Sunday that it is selling down another 20% of its holding in national carrier Air New Zealand was interesting timing.

On Friday, voting papers for the referendum asking New Zealanders whether they support the sell-down of 49% of Crown assets such as Air NZ, Meridian Energy and Mighty River Power will be posted out.

The Government has said repeatedly it will ignore the results of the referendum, labelling the exercise a costly political stunt.

While the referendum was initially launched under the name of Grey Power and the New Zealand University Students' Association, it became clear the Green Party was behind it.

Labour came on board and the referendum then certainly became a politically motivated exercise.

The two Crown assets already partially sold down and listed on the NZX - Meridian and Mighty River Power - were 100% owned.

Air NZ, thanks to an earlier bail-out by a former Labour administration, is (or at least was) 73% owned by the Crown.

The bail-out was required after botched expansion attempts - first with the takeover of Ansett and then a failed attempt to take over Virgin Blue.

Without former finance minister Michael Cullen stepping in, Air NZ would have suffered the fate of Ansett of going into liquidation and New Zealand would have lost its national carrier.

The transaction followed Air NZ shareholders' approval of a $885 million recapitalisation programme.

This was in two parts - a $300 million loan and a $585 million investment.

The loan was by way of 1.25 billion convertible preference shares at 24c per share each and the investment by 2.2 billion ordinary shares at an issue price of 27cps.

The shares on sale this week will be at a discount to Friday's closing price of $1.65 - possibly $1.60 -a significant gain on what was paid back in 2001.

The shares closed last week at a five-year high.

The Government believes the timing is right to sell another 20% of the company, leaving it with 53% ownership.

Labour and the Greens have labelled the move as cynical and unprincipled, given the referendum is being launched this week.

The Government has received dividends from the airline, which has been more consistent in paying shareholders than others in the industry.

It has been profitable, not making a loss from 2003 to 2013, and brokers predict a golden period ahead.

Those who believe the Government should not be in the business of running airlines, energy companies or other commercial enterprises say this is the right time for the sale - at a peak price, with institutions keen to buy into a well-run company which, although it has risks, manages them better than many others.

And Air NZ is rated an attractive investment for those seeking higher risk-higher rewards options.

Claims the Government will be forced to bail out the airline once again if things go wrong do not appear to have substance.

A publicly listed company, under new rules and regulations, must continuously disclose operating details relative to market conditions.

The recent investment by the airline into Virgin Australia is a much different prospect than the botched attempt more than a decade ago.

And taxpayers' money will be less at risk through wider public ownership.

It seems scaremongering by Opposition political parties and trade unions will not stop the Government as it proceeds with its sales programme.

What is most disturbing, however, is that even as it forges ahead with its programme, it is obvious the Government is unlikely to meet its pre-election target of gaining between $5 billion and $7 billion from the sales of state assets.

Prime Minister John Key promised new schools, roads, hospitals and other infrastructure from such sales.

Just last week, it was announced another $1 billion was

planned to be spent in Christchurch during the next 10 years, building new schools and refurbishing others.

Of course, Christchurch is not alone in needing new infrastructure, and if the sales programme continues to proceed, a wider dispersion of money than to roads in Auckland and schools in Christchurch is needed.

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