The Dim-Post

November 18, 2013

Words and deeds

Filed under: finance,Politics — danylmc @ 9:02 am

Talking and thinking about the government’s asset sales – sorry: partial privitisation – policy this weekend, the following points seem valid:

  1. The partial privitisation policy is the Key government’s flagship policy for this term.
  2. It is a disaster.
  3. There isn’t much comment on this in the media

Maybe I’m wrong about point 2 or 3? But looking back at the pre-election promises, the intent was to raise up to $7 billion dollars. It looks like Key and English will end up spending hundreds of millions more on the sales process than they promised and end up with less than $5 billion, which is less than their lowest estimate. And yes, you can point to reasons it’s been a disaster. Solid Energy was supposed to be worth billions but is actually worthless, Meridian’s major customer is threatening to close down, and extorted the government out of $30 million dollars, the Greens and Labour have sabotaged the economy by failing to support the privitisation process and having energy policies of their own. But Key and English are supposed to be financial super-geniuses: couldn’t they have NOT, say, mis-managed Solid Energy into the ground, or anticipated the Rio Tinto problem? Like I said, this is their flagship policy, and the last two years have mostly consisted of National failing to anticipate really obvious problems – like the opposition opposing it – until they blow up in their face and cost the taxpayers tens of millions of dollars.

And maybe I’m just being a biased left-winger here, but I don’t really see much media commentary around the signature failure of the government’s signature policy. Seems that if a left-wing government’s biggest initiative fell over this horribly to the tune of billions of dollars it’d be a really big deal.

I think there’s some conventional wisdom involved: the general media impression of Key is that he has magic powers, at least in financial terms, while English is a ‘safe pair of hands’, also ‘dour’, ‘Scottish’ a ‘Southlander’, ‘frugal’ and so-on. The reality seems to be the exact opposite: they’ve hemorrhaged taxpayer money while botching their flagship policy. (If you add up the amount of money ‘dour, frugal’ Bill English has simply given away to the commercial sector in the last five years it’d probably be close to the two billion dollar mark.) But commentators would have to challenge their core assumptions about contemporary politics before the scale of the failure here became obvious.

About these ads

77 Comments »

  1. I don’t really see much media commentary around the signature failure of the government’s signature policy

    You expected any? That’s why the referendum is important – not because CIR’s aren’t a crap idea that the next left government should scrap under urgency in week #1 – but because it bypasses the right-wing commentators and gets the issue in peoples faces. The sign-up process, the Electoral Commission enrolment campaign, the referendum itself and the governments rejection. It all adds up to a rolling campaign pushing the line that John Key doesn’t give a fuck what people think.

    Comment by richdrich — November 18, 2013 @ 9:10 am

  2. I agree. The cliches many journos trot out make the hairs stand up on the back of my neck. I wonder how people so close to it all can’t see what it obvious when you stand further back. But maybe that’s the lesson here. During 2001-3, while I was working at AT&T in an Asia-Pacific regional role, I saw bid after bid for global network and IT services cross my desk that required vast networks in China (150 cities in some cases) to support manufacturing, logistics, distribution, research and development…..everything. Clearly a tsumani of demand for production capcity in China was underway. But these jobs weren’t in addition to the jobs ‘back home” in North America, Europe and other developed countries. They were to be instead of. literally millions of skilled jobs – entire careers – to be lost in the “West” over the next 5 years. That put the full realisation of this process at somewhere around 2007-2008. I didn’t have to do much math to understand that sometime around 2007-8 *something* had to give in the economies of the West. So I quit that jb in 2004, got rid of my debt and then tracked what to me was the inevitable *something* that would happen around 2008. In late 2007 I told my wife itl ooked it was less than a year away…..so we sold the farm and completely banished all debt. That process was completed on April 22nd, 2008…and the GFC kicked off about 4 months later.

    The point of this story was that all the “experts” didn’t see it coming…..but for anyone who could see millions of jobs disappearing in a handful of years there really wasn’t any other possible outcome.

    I think it’s a bit like that with that portion of the public who pay attention to politics versus those professional journalists embroiled in it. They’re too close. They can’t see what’s obvious when you stand a bit further back.

    …and think.

    Comment by Steve (@nza1) — November 18, 2013 @ 9:16 am

  3. re 2. Define disaster. Less well than expected is not a disaster.
    re 3. meh – asset ownership is just not that important.

    Conventional wisdom – bit like common sense, what you think it might be can be vastly different to everyone else.
    Also you need a counterfactual – people see things relatively not absolutely – John and Bill maybe considered to be relatively better at finance than the opposition, whilst none of them are absolutely any good.

    What is important – legislation/regulation yes, but asset ownership is just limiting your policy tool box to potentially sub-optimal outcomes (for every good Crown asset, its very easy to point to bad Crown assets). Ideally we should be looking at performance long term – which means that sometimes you get good Crown governance, but mostly meh Crown governance by all parties over medium/long term.

    Having the policy flexibility to buy and sell assets as is appropriate for whatever your policy goal is (insert random policy generator here) rather than a reflexive “I object” (to everything because …), will likely lead to slightly better outcomes for society over time.

    Sometimes the Crown just does not need to own 52 Dairy farms.

    Comment by WH — November 18, 2013 @ 9:36 am

  4. I’m not sure 52 Dairy farms immediately jumps to mind when Joe Public thinks ‘Asset Sales; I object!”.

    Comment by Gregor W — November 18, 2013 @ 9:45 am

  5. Maybe the power companies just weren’t as valuable as people thought and the market has priced them correctly.

    After all, MRP is sitting on projects and not developing them because there’s no demand for more power.

    Maybe investors think there’s more risk in these companies than the public perceives.

    JC

    Comment by JC — November 18, 2013 @ 9:56 am

  6. Financial nous? Never mind. This all just shows that Key and the Nats have a good grasp of the modern NZ media. Talking about what you think is going to happen has now replaced reporting on what has happened.

    The latter is factual (boring!). The former is opining, and can’t be proved wrong, because it hasn’t happened yet.

    So for months the media talked about “Kiwi Mums and Dads”, and “5 to 7 billion”. The words were used so often they permeated the public consciousness. Then the shares hit the market, and the words turned out to be empty. But this has produced a fraction of the coverage, so …PR win.

    Comment by sammy 2.0 — November 18, 2013 @ 10:12 am

  7. comment in the media: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11153917

    Comment by Ben — November 18, 2013 @ 10:18 am

  8. Selling shares in commercial assets to pay down debt *is a non-event*. This shouldn’t even be government policy -i.e. It should be an operational matter.

    God knows what you expect to be said that hasn’t been already.

    Comment by Swan — November 18, 2013 @ 10:27 am

  9. >I think it’s a bit like that with that portion of the public who pay attention to politics versus those professional journalists embroiled in it. They’re too close. They can’t see what’s obvious when you stand a bit further back.

    While that’s true, I don’t think there’s a particularly widespread understanding of just how poorly the asset sales program has gone from the vast bulk of the population who do stand back. They still have to actually look, and they still do get their eyes mostly pointed by journalists.

    It also seems that asset sales really aren’t something that matters to punters. They were unpopular even as National got voted in with them as their “flagship policy” (read: Only Policy They Would Admit To).

    I’m not really sure how National got to the point of the public being so oblivious to their incompetence over the only thing they’ve ever even claimed to be good at.

    Comment by Ben Wilson — November 18, 2013 @ 10:34 am

  10. I think Labour and (sorry Danyl) the Greens have to bear some of the blame for this. The CIR was the wrong way to oppose this – it kept the issue in the public eye, but it also put the onus of success or failure on the opposition, which is avoiding the second greatest strength of opposition*, to wit the lack of need to provide a positive policy program that is tested by reality.

    *The greatest strength, of course, is the near inevitable atrophy of support for any incumbent government over time.

    Comment by Hugh — November 18, 2013 @ 10:38 am

  11. @WH: You could argue that a significantly worst than expected return isn’t a ‘disaster’, even if it is a ‘failure’. But given that this was essentially National’s big plan to improve the economy, and improving the economy is in turn their main raison d’etre for being in government, the criteria for failure are much less stringent.

    Comment by Hugh — November 18, 2013 @ 10:40 am

  12. What a weird lot of comments – all talking about how the asset sales were either necessary,or unimportant to the public, or badly opposed by the opposition or whatnot. Little mention of the whole topic of the post – whether or not they sales were necessary, strongly supported by the public or whatever, THEY WERE DONE SO BADLY IT IS A F***CKING JOKE. At the very least if you are going to sell assets, make sure you get a good price for them. Don’t flick them off for a dime.

    Comment by wtl — November 18, 2013 @ 10:44 am

  13. As for arguments about the ‘market has priced them correctly’, when a seller gets less than their lower range for selling their assets, there are only two possibilities:
    1) Either the seller got less than they could have for the assets, maybe because the sales were badly timed, or assets were not made to be as attractive as they could have been (e.g.issues with the underlying assets were not properly resolved prior to sale).
    2) The seller overestimated the value of their assets.

    In either case, the seller (i.e. the National government) was incompetent. As budgets were drawn up with the expected sale price range in mind, either case blows a hole in the budget.

    If you were a shareholder in a business which made such a blunder, you would be rightly p**sed off with the management and directors. Yet, if it is the National government doing the same, supporters of said government don’t seem to give a toss, even though all New Zealanders are effectively shareholders under this scenario.

    Comment by wtl — November 18, 2013 @ 10:56 am

  14. “… think there’s some conventional wisdom involved: the general media impression of Key is that he has magic powers…”

    There is also the constantly repeated received wisdom that Key is the arch centrist who plots a ‘reasonable’ course popular with ‘mainstream New Zealand’ (you get this one every second week from John Armstrong). Yet to me, that this government is doggedly persevering with the privatisation program in the teeth of the discrediting of neo-liberalism after the GFC and it’s own fiscal incompetence can only be explained by an utterly unreasoning adherence to a rigid ideology that they’ve clung to since the 1980s, and in the service of which they are utterly determined to ram through their agenda.

    Comment by Sanctuary — November 18, 2013 @ 11:06 am

  15. I actually think selling the assets is to a significant subpopulation something in which massive losses can be tolerated so long as it fucks up and reduces government power. It’s a form of bridge burning, and you don’t really worry about the value of the bridge when you do that.

    Comment by Ben Wilson — November 18, 2013 @ 11:07 am

  16. A couple of points. Asset sales weren’t the flagship policy. By size, the Christchurch earthquake recovery is the flagship and most of the rest of the flotilla as well. General fiscal and economic management would have a higher place in the Nat’s ranking of their own policies. There has been, as far as I can see. a great deal of negative coverage and comment about the asset sales – the Nats are either doing too little or doing it badly – and no Goldilocks comment – they’ve got it just right – at all. If you read the background papers for Solid Energy they and their advisers were in conflict with the Board and management over the direction of the company. I’m sure Treasury would have flagged the Comalco contract as a risk to the Meridian sale but not necessarily a long term one for the company. If a Labour led government had spent $30m to delay the potential closure of Tiwai Point I doubt you would be complaining. As government subsidies go it seems cheap to me. Finally, a disaster? Christchurch was a disaster, this is below expectations. And. in the dodgy metaphor department. You can’t manage a mining company into the ground, it’s already there.The latter suggests that you are outsourcing the Dim Post yet again to impecunious students.

    Comment by Tinakori — November 18, 2013 @ 11:08 am

  17. More comment in the media: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11146918

    “By its own measures of success, the Government’s Mom programme was an epic fail.

    It blew away $2.4 billion of shareholder value to save $30 million of interest costs and failed to democratise or strengthen the sharemarket.”

    That’s a rather scathing assessment of the asset sale programme. Of course NZers will soon get to vote in a referendum as to the merits or otherwise of this programme.

    Comment by Ross — November 18, 2013 @ 11:12 am

  18. Financial nous? Never mind. This all just shows that Key and the Nats have a good grasp of the modern NZ media. Talking about what you think is going to happen has now replaced reporting on what has happened.

    The tinkerbloggers have gone mainstream.

    Comment by Joe W — November 18, 2013 @ 11:16 am

  19. Tinakori – how can rebuilding a city destroyed by an earthquake be construed as a flagship ‘policy’ other than a necessity? That would effectively imply that the policy position to rebuild Christchurch was ideologically challengable by the opposition (which it wasn’t). The government had no choice if it wanted to stay in government.

    What was (rightly) and is still being challenged were the none too subtle hints emanating from Wellington that governemnt money was contingent of the CCC flogging off its remaining assets and foisting an impractical, grandiose plan on the central city.

    Comment by Gregor W — November 18, 2013 @ 11:24 am

  20. Gregor, the content of the recovery, its size and how it is implemented are all highly contestable and have been.On the other hand, the central city plan was greeted with almost universal acclaim when it was announced. Later, less so. Incidentally, in Chch on business last week and for the first time since the big one it is looking relatively “tidy”, marking perhaps a transition out of disaster to a new world.

    Comment by Tinakori — November 18, 2013 @ 12:34 pm

  21. Point poorly made on my part – I agree that the size, content etc.of recovery were contested, but not the ‘policy’ of reconstruction per se. The alternative would need to be ‘no rebuild’ which I’m not sure was ever seriously posited.

    I’m a bit spectical however of the “universal acclaim” given that the narrative was framed as ‘today ruined and ugly, tomorrow a big shiny stadium = AMAZEBALLS!’.
    Pretty much anything is better than a trashed CBD.

    Comment by Gregor W — November 18, 2013 @ 12:50 pm

  22. *skeptical.

    I do wear glasses though.

    Comment by Gregor W — November 18, 2013 @ 12:51 pm

  23. Danyl: “I think there’s some conventional wisdom involved: the general media impression of Key is that he has magic powers, at least in financial terms, while English is a ‘safe pair of hands’, also ‘dour’, ‘Scottish’ a ‘Southlander’, ‘frugal’ and so-on.”

    You only think this because you’re not up-to-date with how fantastically this government is actually succeeding. Have a read of this neutral and objective piece by Tracey Watkins and you’ll no-doubt come away more enlightened about the magical powers and safe hands of John Key and Bill English.

    Comment by izogi — November 18, 2013 @ 1:18 pm

  24. “THEY WERE DONE SO BADLY IT IS A F***CKING JOKE. At the very least if you are going to sell assets, make sure you get a good price for them. Don’t flick them off for a dime.”

    MRP looks to have been a good price. Meridian – it will be a few years before we can judge that one. Air New Zealand – share price is doing very well. So what are you talking about.

    Comment by Swan — November 18, 2013 @ 2:55 pm

  25. MRP looks to have been a good price…

    If they were a good price to buy at, which they seem to be, then they were almost certainly a bad price to sell at.

    Institutional investors are only buying these shares because the institutional investors calculate that the shares are worth more than they are being sold for.

    Comment by RJL — November 18, 2013 @ 3:42 pm

  26. It’s because everybody knows you don’t sell assets for the money you sell them because you think the private sector will do a better job than the government. (This is textbook stuff.) So when the asset sales don’t bring in money it’s not really a surprise, because no one in the game really took the National government’s claims about using asset sales as a revenue generator seriously.

    This is an account premised on deeply embedded bad faith by large chunks of the establishment, but that’s probably an argument in favour of its plausibility.

    Comment by Keir Leslie — November 18, 2013 @ 3:45 pm

  27. An argument which was, as far as I can tell, never made (but should have been) is this: Owning commerical assets is risky. If those assets/businesses suffer losses or perform poorly, then the loss in capital falls solely upon the government books. Let the risk-taking sector take risks and suffer losses rather than foist it upon the taxpayer.

    Comment by Phil — November 18, 2013 @ 4:08 pm

  28. Let the risk-taking sector take risks and suffer losses rather than foist it upon the taxpayer.

    Because owning monopoly hydro-energy generation assets has worked out so badly for the government over the last hundred years or so, being terribly risky and all….or something.

    Comment by Gregor W — November 18, 2013 @ 4:17 pm

  29. “Let the risk-taking sector take risks and suffer losses rather than foist it upon the taxpayer.”

    Except these assets have been a great revenue earner and very profitable. So, you’d rather the profits went offshore?

    Comment by Ross — November 18, 2013 @ 4:22 pm

  30. From the Hickey article I linked to above:

    “At current market prices, the Government is on track to receive a total of $4.9 billion for the sale of stakes in Mighty River, Meridian and Genesis, and that’s before sale costs estimated at $143 million.

    So far the Mom programme has cost taxpayers and private investors more than $2.4 billion in the form of lower valuations for energy companies and asset sale costs.

    And the benefits?

    Treasury estimated that the forgone dividends from state-owned enterprises over the next five years would be $810 million and that interest costs would be reduced because debt repayment would be $780 million, producing a net benefit of $30 million over five years.”

    Comment by Ross — November 18, 2013 @ 4:24 pm

  31. “Let the risk-taking sector take risks and suffer losses rather than foist it upon the taxpayer.”

    Except when…

    (sounds like a new meme)

    How ’bout:
    Except when the Government has to bail it out at taxpayer expense (the ol’ privatise profit, socialise losses strategy).

    Comment by Sam — November 18, 2013 @ 4:32 pm

  32. Better, Sam, to blow $2.4 billion and save $30 million. You know it makes sense.

    Comment by Ross — November 18, 2013 @ 4:38 pm

  33. “So far the Mom programme has cost taxpayers and private investors more than $2.4 billion in the form of lower valuations for energy companies ”

    Bernard Hickey is an idiot. How does that make any sense at all?

    Comment by Swan — November 18, 2013 @ 5:17 pm

  34. “MRP looks to have been a good price. Meridian – it will be a few years before we can judge that one. Air New Zealand – share price is doing very well. So what are you talking about.”

    Bullshit. MRP was independently valued by Macquarie at $3.74B in 2011. The estimated valuation in the year ending June 2012 was $3.91B. The shares were sold at a $2.50, at the mid-low end of indicative range of $2.35-$2.80. The sale of 49% raised $1.72 billion, which is $200M less than the $1.9B they should have sold for given the valuation.

    Meridian was valued at Macquarie at $6.53B in 2011, with the estimate valuation in June 2012 being $6.58B. The shares were sold at $1.50, at the very bottom of the indicative price of $1.50 to $1.80, raising only $1.88B which is a $1.34B less than the $3.22B expected given the valuation. This was even after the government provided investors with interest-free loans to purchase the shares.

    Note that the amounts gain are BEFORE sale costs are subtracted, and when these are accounted for the process looks even more dire.

    Again, if a company sold their assets for such a huge amount less their the independent valuations, shareholders would be rightly pissed. If you can’t get a good price for your assets, don’t sell them.

    Comment by wtl — November 18, 2013 @ 5:20 pm

  35. I don’t know where Bernard Hickey got his $2.4B from, but the combined valuation of MRP and Meridian was $7.3B at time of sale, compared to $10.5B according to their earlier valuations, i.e. the sales wiped $3.2B off their valuations.

    Comment by wtl — November 18, 2013 @ 5:25 pm

  36. * a huge amount less than their independent valuations

    Comment by wtl — November 18, 2013 @ 5:27 pm

  37. welcome to the “dominant narrative”. the one where clarks govt was “nanny state” and fiscally irresponsible, despite putting us in the black, and being far less interventionist that the current government.

    basically, many NZL journalists are lazy hacks more interested in parliamentary parties and perks than actual analysis.

    Comment by Che Tibby — November 18, 2013 @ 5:28 pm

  38. ” i.e. the sales wiped $3.2B off their valuations”

    Surely a rational response to the facts is that either

    a) The valuations were wrong or,

    b) Something happened to change the value in between the valuations and the sales.

    Saying the sales themselves caused the value to drop is like saying an election caused the support of a party to change because polls before the election showed a different level of support.

    Comment by Swan — November 18, 2013 @ 5:34 pm

  39. Can anyone dig up a list of Mighty River Power and Meridian Energy shareholders, just to see who’s got a conflict of interest in supporting the sell-offs? The top 20 is published on the NZX, but maybe the rest would have to be OIA’ed.

    http://bit.ly/HUiJYE

    Comment by deepred — November 18, 2013 @ 7:01 pm

  40. Swan: At the point of sale, any gains or losses in value would have been realised. If I had my house independently valued at $1.05M and then sold it for $730K despite not urgently needing to sell it, anyone with any financial sense (which apparently doesn’t include National supporters) would think I was a fool. If I then justified it saying “the valuation was wrong” or “something happened to change the value between the valuations and the sale”, they would probably just shake their heads and walk away in despair (or perhaps their eyes would light up in glee at the thought of ripping me off further?).

    In any case, the facts still demonstrate that the government was incompetent. Let’s look at the scenario:

    Let’s say a company has some assets they decide to sell. They don’t urgently need to sell the assets, as they can still raise funds from borrowing (In fact, the cost of borrowing is less than the income stream from the assets). But anyway, they still want to sell the assets. So they get an independent valuation for the assets. The valuation says they are worth $10.5B. They want to sell 49% of the assets, so they estimate that they will receive around $5.4B for these assets. They then plan the budget for coming years accordingly. However, they only manage to sell them for $3.6B, blowing a huge hole in the budget. Surely any sane person would say that the management was incompetent?

    But actually, it’s worse than that. The company was selling multiple assets. The first was sold for $200M less than what the independent valuation. Okay, this is bad enough. The market price for that asset continues to drop, clearly giving a signal that it is not a good time to sell such assets, at least not those in the same class. But then, hold, on, what those the management decide to do? Well, a few months later they decide to go ahead with the sale of a second asset in the same class regardless. Lo and behold, they $1.34B (42%) less than the valuation, even with some sweeteners to try an increase interest in the sale. If this is not evidence of incompetent management, I don’t know what is.

    Not only that, if an actual company was making such a large transaction, especially given the huge differential between the valuation and sale price, they would have sought the approval of the shareholders before proceeding. But no, the ‘company’ in question didn’t do so. In fact, when the shareholders decided they would go ahead and have a vote on it, the management of the ‘company’ says that they will disregard what the vote anyway. Given these facts, it seems fair to judge the management as not only incompetent, but also morally corrupt.

    Comment by wtl — November 18, 2013 @ 8:00 pm

  41. But, you know, the recession. And Christchurch…

    Comment by Tania — November 18, 2013 @ 8:16 pm

  42. “The market price for that asset continues to drop, clearly giving a signal that it is not a good time to sell such assets, at least not those in the same class. ”

    Doesn’t do anything of the sort. It signals that the value of MRP is below what it was sold for. And it signals that the value of Meridian is similarly likely to be lower. The market is valuing them as such. If enough investors thought the “true” value (risk adjusted) was higher, they would pile in and support a higher price. Their is a massive difference between your house price example, and the price of a company of the share market. An individual property is an illiquid bespoke asset, and finding the right buyer can take time. That is not to say that market doesn’t move – and you only know peaks and troughs in hindsight.

    So no doubt, Wtl, you are piling into NZ energy companies given how you know so much better than everyone else?

    Comment by Swan — November 18, 2013 @ 8:57 pm

  43. ^^ Their = there.

    Comment by Swan — November 18, 2013 @ 8:58 pm

  44. “Bernard Hickey is an idiot. How does that make any sense at all?”

    It makes perfect sense.

    Comment by Ross — November 18, 2013 @ 9:17 pm

  45. Swan, you’re being willfully obtuse, picking holes in wtl’s argument while avoiding the main points. It demonstrates you are blinded by free-market ideology. Admit it, they have fucked up on a grand scale and as the original blog suggests many commentators, like you, cannot and will not see it.

    Comment by nigelsagentinthefield — November 18, 2013 @ 10:10 pm

  46. “Doesn’t do anything of the sort. It signals that the value of MRP is below what it was sold for. And it signals that the value of Meridian is similarly likely to be lower. The market is valuing them as such.”
    Exactly. Any competent operator would have worked out that the market is not valuing the companies very highly, so it would be best if the policy of selling the assets was re-evaluated. Even treasury warned that selling the assets in quick succession was not a good way of executing the sales. The income stream to the owners was greater than the the cost of borrowing, so it doesn’t make sense to rush the issue.

    “So no doubt, Wtl, you are piling into NZ energy companies given how you know so much better than everyone else?”
    When I do invest, I diversify my investments rather than put all my eggs in one basket. That is the only rational thing for an investor to do. At the current price, I would say that MRP shares might be a good purchase, but my current circumstances dictate that I should leave all my additional funds as cash as I may need to draw on them in the near future. Even if I did have available funds, I would not put a large proportion of my money into power companies, simply because I can no have absolute surety in that belief that they are undervalued to justify taking such a risk. Doing so would simply be gambling.

    Comment by wtl — November 18, 2013 @ 10:24 pm

  47. Bless this government for making sure that lazy investment advisors only have to understand one more market than the residential property their livelihoods already depended on.

    Comment by Sacha — November 18, 2013 @ 10:48 pm

  48. #46: Too true. It’s a choice of either the property bubble, or (ex-)state monopolies. It’s not so much a free market as it is something out of pre-Revolutionary France.

    Again, will it take an OIA request for a full list of MRP/Meridian shareholders?

    Comment by deepred — November 19, 2013 @ 12:27 am

  49. “Exactly. Any competent operator would have worked out that the market is not valuing the companies very highly, so it would be best if the policy of selling the assets was re-evaluated. Even treasury warned that selling the assets in quick succession was not a good way of executing the sales. The income stream to the owners was greater than the the cost of borrowing, so it doesn’t make sense to rush the issue.”

    You are making two fundamental mistakes in your analysis:

    1. You are assuming the asset values are in a trough and will recover. The idea of not selling to avoid crystallizing losses is a common irrational behaviour of amateur investors. California circa 2006. Property prices have just come off the peak and are down 5-10%. According to your method, you don’t sell now if you don’t have to. Plenty of Californian homeowners were thinking the same.

    2. By looking at anticipated income stream alone you are ignoring risk. You can’t compare interest savings with dividends without taking into account risk. Paying down debt is low risk. Owning equity is much higher risk.

    Comment by Swan — November 19, 2013 @ 5:47 am

  50. Swan: Your argument is full of enough jargon to give it a semblance of authority but by concentrating on minute details you either don’t really know what you are talking about or are simply trying to create a smokescreen to distract from the real issue at hand.

    The fundamental issue is simple. When I’m selling an asset, whether it is a company, a house or a box of puppies on TradeMe, the process is the same:

    1) I estimate how much I think the asset is worth.
    2) I try to find a buyer(s) for the asset and see how much they are willing to pay for it.

    Ideally, I would expect to get a price from the buyer that meets or exceeds my valuation. If the price the buyer is offering 30-40% less than my valuation, the choices I have are as follows:

    A) I can accept the price the buyer is offering regardless.
    B) I refuse to accept the offer and instead re-evaluate the sale process. e.g. Was my valuation correct? Is there something I can do to make the asset more attractive to a buyer? Should I be selling the asset in a different way? Were all prospective buyers aware of the sale? Should I hold on to the asset for a longer time and sell it later?

    Option A might make sense if I was desperate for cash or if the asset was losing money. However, if the asset was providing a good return, I would be utterly incompetent if I immediately chose to go for A without some re-evaluation. After all, the decision to sell the asset would have been made with my valuation in mind. If I did not reconsider my options when I found that I would be getting much lower price for the asset than I expected, it makes a mockery of my initial decision. If I am going to sell the asset regardless of price, why even bother getting a valuation?

    But what you are saying is that the market price is always perfect and I should always accept the seller’s offer no matter what. That is, you are saying that Option A is absolutely correct under all circumstances. Obviously, if that’s the case that the seller can never be considered to be incompetent because you have simply defined incompetence out of existence. It doesn’t matter what the seller does, when they sell something they will always get the ‘best’ price for it (because the market is always perfect, I suppose?) so the seller always did the right thing.

    Your argument might make sense on planet Key, but on planet Earth it is obvious that you are just a fool.

    Comment by wtl — November 19, 2013 @ 10:33 am

  51. Wtl,

    Again there is a difference between puppies and houses, and a share market.

    They could have done badly as sellers, and we would know this if, say, the share price doubled on listing. It hasn’t. The share market is very liquid with a huge number of buyers and sellers, with full transparency on price. It is the general election compared with the telephone poll of an estimated valuation.

    The fact that MRP is down on listing and Meridian is breaking even indicates the price the government got was pretty good.

    Comment by Swan — November 19, 2013 @ 10:52 am

  52. The fact that MRP is down on listing and Meridian is breaking even indicates the price the government got was pretty good.

    Accepting for the sake arguement, that the independant estimation was wildly overvalued, and that the sell price was therefore “pretty good”, shouldn’t Key & co. be held to account for their absurdly optimistic valuations?

    If the numbers were that far off on the first sale to hit the target value of the sale of the portfolio, wouldn’t the prudent thing to do be to hold off on subsequent sales until a realistic value could be estimated, therfore determining whether the whole process made sense financially?

    Comment by Gregor W — November 19, 2013 @ 11:00 am

  53. “Paying down debt is low risk. Owning equity is much higher risk.”

    If you look at government debt you will see it has doubled since this government took office. It seems a little cute to complain about debt levels when you’ve made great efforts to add to it. Selling the family silver to pay off your credit card isn’t smart.

    http://www.tradingeconomics.com/new-zealand/government-debt-to-gdp

    Comment by Ross — November 19, 2013 @ 11:35 am

  54. “…shouldn’t Key & co. be held to account for their absurdly optimistic valuations?”

    Yes fair enough it is a reasonable thing to question. The point I have been making above is that you can’t just draw the conclusions Wtl and Hickey has that the government didn’t get a good price based on the available information.

    I am not trying to defend all aspects of the listings. In fact I would have far preferred treasury to be given autonomy to divest commercial assets as it sees fit. Unfortunately asset sales are very politicised.

    “If the numbers were that far off on the first sale to hit the target value of the sale of the portfolio, wouldn’t the prudent thing to do be to hold off on subsequent sales until a realistic value could be estimated, therfore determining whether the whole process made sense financially?”

    Sure, that sounds reasonable. I am sure they have been assessing it as they have gone along (or at least I have no reason to believe they haven’t). But agreed that if they haven’t, of course they should have.

    Comment by Swan — November 19, 2013 @ 12:41 pm

  55. I am sure they have been assessing it as they have gone along (or at least I have no reason to believe they haven’t).

    Given that the Meridian sale went ahead after the lower take in MRP, I would conclude the opposite.

    Comment by Gregor W — November 19, 2013 @ 2:18 pm

  56. “I’m not really sure how National got to the point of the public being so oblivious to their incompetence over the only thing they’ve ever even claimed to be good at.”
    Key is a very good, smart talker and debater. He uses humour very astutely. He is intelligent, he’s confident in what he says, and he sounds it.
    Labour? For the past four years? Not so much. And if you can’t even talk intelligently, confidently and passionately about what you’d like to do differently, hard to believe you’d be all that good at doing it.

    Comment by Rob — November 19, 2013 @ 5:52 pm

  57. I guess beauty really is in the eye of the beholder. I have always found Key’s presentation to be a greasy, smarmy and overall untrustworthy. Much like that of a shady used-car salesman.

    The man may be “intelligent”, but I’m not left with the impression that he is actually all that “smart”. He’s just stooge with some superficial charm.

    Care to provide some examples of his astute use of humour?

    Comment by Rob — November 19, 2013 @ 6:00 pm

  58. Meh. Its driven by the lack of alternatives. Cunliffe is a jerk and Norman is a creep. Even the stupidist of the media know that.

    Comment by grant — November 19, 2013 @ 7:38 pm

  59. “I’m not really sure how National got to the point of the public being so oblivious to their incompetence over the only thing they’ve ever even claimed to be good at.”

    Key has mastered the art of peddling a variety of snake oil that makes NZers feel like ‘temporarily embarrassed millionaires’.

    Comment by deepred — November 19, 2013 @ 7:53 pm

  60. I, for one, would love to hear the conversation between swan and his/her boss when swan reveals that he/she just flicked off a $5B asset for 30% less than its independent valuation.

    Comment by wtl — November 19, 2013 @ 8:34 pm

  61. The MSM I’d more concerned about finding out which MP rents an office from her mother.

    Comment by Nick Kearney — November 19, 2013 @ 10:40 pm

  62. Should be *is* more concerned………..

    Comment by Nick Kearney — November 19, 2013 @ 10:41 pm

  63. “Saying the sales themselves caused the value to drop is like” understanding the basics of supply and demand. Where oversupply in a market will cause prices to fall. Almost like if our stock market was already full of energy generation and someone decided to dump a huge bunch of extra energy generation shares on it all at once.

    “… not only incompetent, but also morally corrupt.” See, here in the real world, we call that ideologically driven. In contrast to parties which might follow expert evidence or international best practice or whatever. It’s not fair to compare National to incompetent sellers or corrupt dealers: there’s no evidence they actually care about price or are pocketing anything from the sales, they just have an ideal that government doesn’t need to own more than 51% of their assets (because they’re owned for the purpose of control, not profit). It simply doesn’t go any deeper than that.

    Sure, if I owned a bunch of stuff and sold it under value I’d be an idiot, but governments can’t actually go broke or make real losses, all they can do is shift the costs and benefits of society onto different people (in this case by running a massively subsidised private saving scheme for the rich during a long economic lull, being anti-Keynesian for shits and giggles).

    Comment by tussock — November 20, 2013 @ 12:48 pm

  64. Tussock, you can’t really believe the government has been anti-keynesian when it has been running very large deficits.

    Deep Red – you don’t need to make an OIA request for a share register. Look em up on the companies office site to your hearts content

    Comment by Tinakori — November 20, 2013 @ 1:41 pm

  65. ““Saying the sales themselves caused the value to drop is like” understanding the basics of supply and demand. Where oversupply in a market will cause prices to fall. Almost like if our stock market was already full of energy generation and someone decided to dump a huge bunch of extra energy generation shares on it all at once.”

    Demand for shares isn’t like oranges. It is ultimately about perceived value. NZ is party of global economy, a few listings in NZ are a drop in the bucket.

    Comment by Swan — November 20, 2013 @ 4:25 pm

  66. I reckon you’re right on all three points. I am particularly concerned that National have many members in their pocket. If this is true, it speaks volumes about how politics have changed ever since this scoundrel came to power. If it isn’t. then there must be something in the water (besides fluoride).

    National campaigned on asset sales in the 2011 election and now they claim they have a mandate on it. While National got the most votes in the election, it has always been clear in polls that most people were/are against asset sales. Also, they were planning it behind closed doors as early as 2009 because this is when the Government bought out Shell and renamed it Z petrol stations, some rural operators of Shell being told by the corporation that they were being closed for economic reasons, although I doubt the correctness of that excuse because some of the operators had been running their petrol stations for twenty to thirty years.

    There has been nothing in the mainstream media about these dodgy petroleum deals. There was nothing in the media, even, about the Government planning to buy Shell New Zealand and the general public didn’t find out about it until after the purchase had been completed.

    Comment by Daniel Lang — November 21, 2013 @ 3:23 pm

  67. There was nothing in the media, even, about the Government planning to buy Shell New Zealand and the general public didn’t find out about it until after the purchase had been completed.

    Daniel – Shell NZ distribution was bought Infratil and the NZ Super fund.

    By law, the fund operates at arms length from the Govt, specifically to avoid the conflicts of interest that you imply. While the guardians of the fund must have regard to Ministerial direction relating to performance – which must be tabled in Parliament my the Minister of Finance – they are not obliged to take ‘advice’ from the Minister with regard to specific investments and have a “duty to invest the Fund on a prudent, commercial basis”.

    Comment by Gregor W — November 21, 2013 @ 3:42 pm

  68. …and have a “duty to invest the Fund on a prudent, commercial basis”.

    Although not obviously relevant here, there are also criteria around “ethical investment” which are potentially ammenable to specific ministerial direction. Although, exactly what constitutes an ethical investment is apparently somewhat arguable. https://www.greens.org.nz/press-releases/super-fund-complacent-ethical-investment

    Comment by RJL — November 22, 2013 @ 8:19 am

  69. The fact that Infratil was co-purchaser of Shell New Zealand (distribution) is irrelevant in this discussion. The NZ Super fund is funded off the back of the taxpayers and they have a right to know what assets are being bought before the transaction has been completed. It was bought by the NZ Super fund because it would not have been a good look for the Government to buy it directly in 2009 when it was planning to sell off shares in other state assets in 2013. It was decided by the Government to keep it quiet for that reason. Because most other such deals are in the public domain whilst being negotiated, one cannot discount the possibility that bribes may have been paid to certain people in the closely-knit petroleum industry, in order to keep them silent on this matter.

    Early in 2009, Shell decided to close some rural petrol stations for “economic reasons”, namely the cost of transporting the petrol to the rural stations. But this was a weak excuse becuse it bore no resembance to the reality of the industry at that time. Another reason cited by Shell was the recession. These rural operators, however, had often run the business for 20 or more years and had survived the economic downturn of the late 1980’s and the economic upset in the early 2001 and 2002. In 2009, they were making a profit and so was Shell. But the Government decided that the profits were not good enough in rural areas. But, hey, it wouldn’t be a good look to buy Shell and then close down rural businesses! So they instructed Shell to shut down the businesses and then Infratil and the NZ Super fund bought Shell New Zealand less than one year later.

    Infratil and the NZ Super fund owned Shell (now Z) for four years. They still do, but have sold shares in it between the sales of shares in other state assets. Therefore, the relationship between the New Zealand Government and the overseers of the NZ Super fund can hardly be described at being at arms length because this was no mere coincidence. Don’t misunderstand me now. The NZ Super fund is more wealthy because of these dealingsa dn this is good for taxpayers but I have empathy for the business owners who were making a reasonable profit and who lost their business anyway, simply because of the agenda and greed of the New Zealand Government. And the agenda and greed of Infratil, now that we come to it.

    Comment by Daniel Lang — November 23, 2013 @ 10:13 am

  70. The NZ Super fund is funded off the back of the taxpayers and they have a right to know what assets are being bought before the transaction has been completed.

    Really? That would be a pretty odd way to run an investment fund.

    Comment by Gregor W — November 25, 2013 @ 10:21 am

  71. Daniel,

    Shell (worldwide) has been in the process of flogging off all their downstream (refineries, retail fuel etc) assets for years. They were not, and are not, as profitable as the upstream (i.e. drill, baby, drill) activities, so Shell was moving their capital to areas which would make the most return. The economic reason was not “these businesses are not making money” but “these businesses are not making anywhere the same money as drill, baby, drill.”. Yes, they are good little business on their own, but are essentially the scraps of the oil industry. Production is the goldmine. Retail was/is ticket clipping.

    Nothing to do with paranoid fantasies about NZ government micro-managment.

    FM

    Comment by Fooman — November 25, 2013 @ 5:28 pm

  72. They’ve got to you too, Fooman.

    It’s blindingly obvious to any seasoned observer that a National government would want a chain of gas stations as the jewel in the SOE crown, so they colluded with Shell and the Super Fund to make it happen.

    Open your eyes, man!

    Comment by Gregor W — November 25, 2013 @ 8:35 pm

  73. @ Gregor: No, it’s not odd on this occasion. This is not a private investment fund. This is public money. It was taxpayer money (and possibly borrowed money that the taxpayer will eventually have to pay back) that got the NZ Super fund started in the first place. The taxpayer needs a say in what assets are bought and sold. If not, then at least the knowledge before the transaction has been completed.

    “It’s blindingly obvious to any seasoned observer that a National government would want a chain of gas stations as the jewel in the SOE crown”
    No, Gregor W, they do not want any jewels in the SOE crown. They want to get rid of all the jewels in the SOE crown and that is precisely what they are doing. I have explained that they used Shell NZ as nothing more than a convenient “investment” for a mere four years, and are now “partially privatising” it in between “partially privatising” nearly everything else. What a nice set of little coincidences we have, don’t we?

    @Fooman: I understand perfectly your points. But why sell to a Government behind closed doors? And then why would the Government resell the investment after a mere four years? Does the taxpayer not have a right to know what deals are going to be going ahead? Let’s buy some nuclear weapons and store them in, say Russia, and tell the taxpayer a year or two after we buy them! Let’s partially privatise them after four years, aye, and sell it back to the taxpayer (its original purchaser) for a premium, why don’t we do that? And why don’t we just not make it clear what we are going to do with our profit from it? You know, we do have an obligation to make it clear what are we going to do with this windfall, but what the heck.

    And I don’t see anything paranoid about the reality of these covert petroleum deals that I explained in detail very clearly to avoid confusion from any of the commentators. The fact is, though, that I am showing you two something corrupt in New Zealand politics that you don’t want to see and you are rebelling from the reality of it and from the facts that have been explained to you. You are victims. You are either being charged a hefty premium to own assets that you originally contributed to in the form of taxes, or you are having you share of the assets that you contributed to in the form of taxes sold out from underneath you and you have no clue what you are going to get in exchange for your slice. A piece of new tar seal in Auckland, perhaps.

    Comment by Daniel Lang — November 27, 2013 @ 3:46 pm

  74. The taxpayer needs a say in what assets are bought and sold. If not, then at least the knowledge before the transaction has been completed.

    Daniel – If any investment fund went through a public consultation process with its investors detailing its strategy prior to making a purchase, it would (a) be the least successful fund ever for what I would think are obvious reasons and (b) a gift for speculators. Suggest you look up the term ‘moral hazard’.

    I have explained that they used Shell NZ as nothing more than a convenient “investment” for a mere four years, and are now “partially privatising” it in between “partially privatising” nearly everything else.

    I’m not sure you undersand the transaction that took place when Shell sold down the distribution part of the business. A private company (Shell) sold the business to a consortium made up of another private company (Infratil) and a Crown Entity (The Super Fund).

    The company, Greenstone energy – later rebranded as Z – was never an SoE.
    It was a company (pre IPO) owned by 2 shareholders (50/50), one of which was a crown entity.

    Comment by Gregor W — November 28, 2013 @ 5:26 pm

  75. Not necessarily a public consultation process but the knowledge is necessary unless it is a matter of national security, in most cases which it is not lol. The public usually know what the government buys directly because it is in the media. Why not investment funds, that are effectively subsidiaries of the New Zealand Government and began by having taxpayer money (or money that they taxpayer is going to have to pay back) put into it?

    It’s irrelevant that it was a 50/50 partnership because one of the partners was an investment fund that controls taxpayer’s money. I’m not sure you understand the dodgy dealings that took place, mate, but I will explain on Monday after a nice relaxing weekend, with a bit of sorrow thrown into the mix because of how the majority of the public has been conned.

    Comment by Daniel Lang — November 29, 2013 @ 3:44 pm

  76. Why not investment funds, that are effectively subsidiaries of the New Zealand Government…

    Also suggest you look up the term ‘subsidiary’, Daniel.

    I’m not sure you understand the dodgy dealings that took place…

    I’m not sure you understand the purpose of the NZ Super Fund (or it’s relevant legislation) or for that matter, the basics of economic decision making, but we’ll have to leave it at that I’m afraid.

    Comment by Gregor W — November 29, 2013 @ 4:18 pm

  77. No, we will not have to leave it at that. And it is effectively a subsidiary. It’s “relevant legislation” has been trodden over and that is the point.

    You’ve made points that have proved my points but you have failed to realise this.

    I know that Z petrol stations have never been a SoE. But now it is being treated like it is because it is being partially privatised. In fact, what I wrote was that it was purchased by the NZ Super fund (50/50 partnership with Infratil, yeah) because it wouldn’t have been a good look for the government to buy it directly (as a SoE) in 2009 when asset sales had already been planned for 2013 (before they campaigned on it).

    So you can see that National had an agenda to sell assets before the earthquakes began.

    Fooman made the point that Shell have been selling assets for years because the drilling side of their operations is more profitable.

    So they would therefore have closed down petrol stations that were running at a loss and waited for two to three years for the balance sheets to look shinier.

    What actually happened was that they closed down rural petrol stations that were somewhat profitable and sold less than a year later. That’s something I’m going to question because I haven’t succumbed to complacency.

    Comment by Daniel Lang — December 2, 2013 @ 3:27 pm


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

The Rubric Theme. Blog at WordPress.com.

Follow

Get every new post delivered to your Inbox.

Join 417 other followers

%d bloggers like this: