New Zealand: is selling state assets dangerous?

National wants to sell 49% of five state-owned corporations by 2014.  How do they stop stakes being sold on overseas?

Bill English, Finance Minister and No.2 in the current National-led Coalition, was unable to answer the question of how shares in these businesses initially sold to New Zealanders would not subsequently be sold on to foreign-owned interests or abroad, TVNZ was reminded by Labour Finance spokeman, David Cunliffe.

Why doesn't a post-November election National government divest equity in these state owned assets as non-voting stock?  Which predatory foreign corporation intent on vying for a full bid would be keen to own 'Class B' shares?  Dividends on future profits might be reaped, but with no power to alter board membership or influence corporate stragegy such expenditure would be viewed as a poor investment decision.  So shares would stay in private investors' hands in all probability, and Kiwis would hold onto prized national assets.

The sales will increase the size of the New Zealand capital markets, enhancing interest in and the liquidity of NZX, the Wellington stock exchange.  The local share market is sorely undercapitalised at a present level of c. NZ$58bn (US$47bn), so such a fillip would strengthen the exchange. The durability of NZX is vital if head offices are to be retained onshore.  Distribution of this stock would also encourage more Kiwis to invest in an asset class other than property, where the bulk of private cash has been directed in the past.  

State-owned assets proposed for sale are:
  • Air New Zealand, the national carrier, estimated to be valued at up to US$1.3bn
  • Genesis, an electrity supplier, estimated to be worth up to US$1.4bn
  • Meridian, an electricity generator, estimated to be worth up to US$5.3bn
  • Mighty River Power, an electricity supplier and owner of Mercury Energy, estimated to be valued at up to US$3.1bn
  • Solid Energy, a coal producer and electricity supplier, estimated to be worth up to US$1.4bn.
Valuations pertain to the whole company in each case, and are as per a New Zealand Herald report on Jauary 29, 2011, converted from NZ Dollars to US Dollars as of August 20, 2011, using

The National Party may have other state-owned concerns in its sights too. The present proposal appears to be a bright light on an otherwise fairly uninspiring political platform from National.  But in such a small and vulnerable economy, these asset sales should to be handled with firmness and finesse.

Check out all commentaries here.  


  1. I disagree entirely.

    Selling 49% of these assets is already a foolish thing to do - control is worth money, and if the assets should be sold, then the 49% limit is just going to reduce the sale amount. Selling them as Class B shares only compounds that problem.

    The real issue is that they really shouldn't be sold. Selling energy assets at this time in history is quite simply an act of economic vandalism that, had we an intelligent electorate, would see the perpetrators sacked at the next election. Sadly, this is unlikely to eventuate.

    I'm not opposed to selling state assets if they are underperforming and can't be fixed (not the case with the energy companies, by all accounts), and providing the proceeds are invested in other wealth creating enterprises, and not merely frittered away on short term spending or debt incurred from previous spending.

    We do have a small borrowing problem, it's true, but not an urgent repayment problem as far as I can see. So it's appropriate we should look at intelligent spending control, and more importantly, ways to increase our income. This needs investment, not divestment.

  2. You've already said NZ needs investment and sure, you're right. However, if the country has a borrowing problem then revenue has either to be raised by cutting the budget in maybe social services, defence, welfare, say or by raising taxation. Raising tax levels would encourage more Kiwis across the Ditch and disincentivise entrepreurialism. How does holding onto control through a 51% holding in the ex-SOE cause a problem? Selling only 49% enables the state to maintain control, encourages participation in sharemarket activity from the general public, and enhances the capital value of the undercapitalised NZX. By making some or even all of the divested shares B class then dividends will be paid out but no voting rights given away. The state raises funds for future capital costs, the people hang onto their assets and the stockmarket is more liquid. A win-win-win, surely? I appreciate that losing energy companies at a time of climate change would leave NZ exposed. But who will order the cutting back of post-sale investment? The government remains guarantor, no? Where is the Regulator in NZ to oversee the activity of energy giants? Does one exist? And if not, why not?

  3. I think this needs a multi-faceted approach; some cuts, but also some tax. I don't see the tax issue as being so directly correlated to emigration to Aussie, or for that matter, the number of new small business startups. I'd love to see some decent stats on company formation and growth over time - all I've managed to turn up is that we have about the same number of new businesses formed each year as those that go bust. And that number is already high for the small size of our economy. So I don't think we're short on raw entrepreneurship - more on the ability to grow from those starts into something larger.

    As to whether we have a borrowing problem or not, a glance at the latest government (11 months to May) financials would suggest no. Finance costs are barely up, certainly compared against insurance and other categories no doubt related to the earthquake. Our external debt is low compared to assets and revenue is even slightly up. Quake costs were covered from prior provisions although insurance costs are way up. Not sure this is payments or premiums. In short, no rush to sell core assets.
    We should look at spending though: National have hardly embraced austerity, and times are tight. That's a hard debate though, and worth doing over a good bottle of red.
    have you seen www .wheresmytaxes.