Total Crown Balance Sheet (continued)
...resulting in an overall weaker balance sheet across the forecast period.
Overall, these asset and liability movements lead to a reduction in net worth attributable to the Crown over the first two years of the forecast period, to $64.6 billion, as the balance sheet continues to bear the effects of the forecast operating balance deficits.[10] Following the return to fiscal surplus in 2014/15, a gradual improvement is expected, with net worth attributable to the Crown rising to $73.2 billion by 2016, still remaining $7.4 billion below 2011 levels.
- Figure 2.12 - Net worth attributable to the Crown, 2010 to 2016
- Source: The Treasury
In terms of balance sheet composition, the overall changes are consistent with the broad trends outlined in the Pre-election Update (Figure 2.13).
- Figure 2.13 - Total Crown balance sheet composition, 2010, 2011 and 2016
- Source: The Treasury
The Social and Commercial Portfolios are expected to grow in net terms, by $12.2 billion and $2.0 billion respectively, as asset growth in each area outpaces that of liabilities.
The Financial Portfolio is the only area of the balance sheet expected to fall in value, as the growth in core Crown borrowings, combined with the reductions in NZDMO and Earthquake Commission assets, results in an increasingly negative net position, from -$47.2 billion to -$63.1 billion by 2015/16.
Government's Partial Share Sales
The Government intends to sell up to 49% 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 2.16 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 2012 Budget Policy Statement, but the assumptions and accounting treatment have been slightly revised in accordance with International Accounting Standards.
|
Year ending 30 June $billion |
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.
As the Government will retain control of these entities they will continue to be Government Reporting Entities. This means that the companies will continue to be fully consolidated in the financial statements of the Government, with the minority interest in those companies, which will increase substantially, being disclosed separately.
As a result, the Government's balance sheet will not reduce in size as a result of the partial share sales. 100 percent of the assets and liabilities of those companies will continue to be included in the Government's total assets and liabilities. Instead, the minority interests' share of those assets and liabilities will increase.
|
Year ended 30 June $million |
2016 Without Partial Sale |
Impact of Partial Sale |
2016 With Partial Sale |
Notes |
|---|---|---|---|---|
Assets |
||||
| Social | 124,392 | - | 124,392 | |
| Commercial | 70,279 | - | 70,279 | |
| Financial | 69,414 | - | 69,414 | |
| Total Assets | 264,085 | - | 264,085 | |
Liabilities |
||||
| Social | 14,945 | - | 14,945 | |
| Commercial | 37,484 | - | 37,484 | |
| Financial | 138,643 | (6,115) | 132,528 | 1 |
| Total Liabilities | 191,072 | (6,115) | 184,957 | |
Net Worth |
||||
| Attributable to the Crown | 72,705 | 475 | 73,180 | 2 |
| Attributable to minority interests | 308 | 5,640 | 5,948 | 3 |
| Total Net Worth | 73,013 | 6,115 | 79,128 |
1 Financial liabilities reduce in line with the reduction in net debt.
2 Net worth attributable to the Crown increases to reflect the accrual impact outlined in table 2.16 above.
3 Net worth attributable to minority interests increases as follows:
| Net assets divested | 5,200 |
|---|---|
| Forgone profits | 900 |
| Less forgone dividends | (460) |
| Increase in minority interests | 5,640 |
Source: The Treasury
Notes
- [10]“Net worth attributable to the Crown”excludes the portion attributable to minority interests. Over the forecast period, net worth attributable to minority interests is forecast to rise to $5.6 billion as a result of the Government's partial sale of shares in five companies. See page 43 for further details.
