Investing in the Future
The Government intends to offer the public shares in four State-owned enterprises (SOEs) - Mighty River Power, Meridian, Genesis Energy, and Solid Energy - as well as reducing its shareholding in Air New Zealand. The Crown will continue to hold at least 51 per cent of the shares in each company.
This share offer will free up capital so the Government can invest in more public assets and new infrastructure without having to borrow to do so. The "Government's partial share sales" box on page 7 shows how this programme of partial sales is reflected in the Treasury's fiscal forecasts.
The Government has established the Future Investment Fund to receive all proceeds from the share offers - expected to be between $5 billion and $7 billion. The Fund will re-invest these proceeds in other public assets like schools and hospitals over the next few Budgets. In particular, the Government has earmarked $1 billion of the Fund for modernising and transforming New Zealand's schools.
Budget 2012 allocates $559 million to capital projects from the Fund. Provision has also been made in the fiscal forecasts for a further $3 billion to be allocated from the Fund over the next three Budgets.
The Fund makes it clear that the partial sale of shares in the SOEs does not result in any net loss of public assets, but simply changes the mix of those assets.
Government's partial share sales
The Government intends to sell up to 49 per cent of its shareholdings in the SOEs Mighty River Power, Meridian, Genesis Energy, and Solid Energy and reduce the Crown's current shareholding in Air New Zealand.
Mighty River Power is the first company being prepared for partial share sales, via an Initial Public Offering, which is expected to commence in the third quarter of 2012, subject to market conditions.
Table 2 below outlines the forecast fiscal impacts of the Government's partial sale of shares in these five companies. These assumptions are similar to those reported in the BPS, but the assumptions and accounting treatment have been slightly revised in accordance with International Accounting Standards.
|
Year ending 30 June $billions |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
Total |
|---|---|---|---|---|---|
| Cash/Debt impact | |||||
| Forecast cash proceeds | 1,500 | 1,500 | 1,500 | 1,500 | 6,000 |
| Forecast forgone dividends | (50) | (90) | (140) | (180) | (460) |
| Estimated finance cost savings | 55 | 91 | 173 | 256 | 575 |
| Reduction in net debt | 1,505 | 1,501 | 1,533 | 1,576 | 6,115 |
| Accrual impact | |||||
| Forecast forgone profits | (90) | (180) | (270) | (360) | (900) |
| Estimated finance cost savings | 55 | 91 | 173 | 256 | 575 |
| Net decrease in the operating balance before gains and losses (OBEGAL) | (35) | (89) | (97) | (104) | (325) |
| Forecast gain on disposal recorded in taxpayer funds | 200 | 200 | 200 | 200 | 800 |
| Increase in net worth attributable to the Crown | 165 | 111 | 103 | 96 | 475 |
Estimated finance costs are based on average bond yields.
Profits include dividends paid in cash to shareholders and earnings that are retained by the company.
Source: The Treasury
The estimated fiscal impact of the partial share sales is:
- a $6.1 billion reduction in net debt. Proceeds will reduce the Crown's borrowing requirement. Forgone dividends increase net debt but are offset by estimated finance cost savings
- a $325 million reduction in the operating balance before gains and losses (OBEGAL). Profits attributable to minority shareholders (forgone profits) reduce the surplus. This is offset somewhat by a reduction in finance costs resulting from the reduced net debt, and
- a $475 million increase in net worth attributable to the Crown over the forecast horizon. Gains on disposal are forecast, reflecting an expectation that sale prices will be greater than the proportion of the companies' carrying value divested by the Government.
