Tuesday, November 5, 2013

Privatization Drive Raises Billions in Australia, New Zealand

State Governments Join the Action in Australia
Australia and New Zealand both rank among the world's leaders in privatization this year, raising billions of dollars through initial public offerings and direct sales.
By Gillian Tan
A wind turbine at the Te Uku wind farm, operated by Meridian Energy Ltd., in Raglan, New Zealand. Bloomberg News
Australia and New Zealand rank among the global leaders in privatizations this year, raising billions of dollars as lawmakers seek to cut debt and plug budget deficits.
Their privatization sprees have injected needed cash into government coffers and freed the governments to focus on their core missions while injecting life into both nations’ markets.
Last week’s listing of New Zealand’s Meridian Energy, which raised US$1.56 billion in the country’s biggest-ever initial public offering, followed Z Energy’s US$678 million IPO in August and Mighty River Power’s US$1.4 billion offering in May.
Those three deals are among the five biggest privatizations via IPOs in the world in 2013, and raised a total of US$3.7 billion—ranking New Zealand first globally in privatization via IPO this year, according to data provider Dealogic.
In addition to raising needed cash, such listings also help cultivate local capital markets, said Brett Shepherd, chief executive officer of investment bank Deutsche Craigs.
“We’ve seen in New Zealand, where the government realizes they are not the best commercial owners of certain assets, privatizations help the development of capital markets in terms of liquidity by attracting greater offshore and domestic participation and encouraging other unrelated listings,” he said.
Australia, meanwhile, this year ranks second globally in privatizations through direct asset sales, raising US$9.65 billion, according to Dealogic. And more assets could soon be up for bidding, including the country’s US$22 billion student-debt portfolio and health insurer Medibank Private, which is worth up to US$3.8 billion, according to analysts.
Such deals are welcomed by equity investors such as Marcus Fanning, who manages more than 4 billion Australian dollars (US$3.8 billion) as head of Australian equities at Colonial First State Global Asset Management.
“The market is positively disposed to privatizations, with the main reason being that businesses often achieve better returns when they’re no longer being managed by governments,” said Mr. Fanning, whose firm bought stock in Meridian Energy’s IPO.
In Australia, the federal government hasn’t been alone in privatizing assets. State governments have been doing the same in efforts to solve budget shortfalls and improve credit ratings.
Australia’s most populous state, New South Wales, in April sold long-term leases to two ports for A$5.1 billion. The state confirmed on Tuesday that it would also seek to lease Port of Newcastle, the world’s largest coal-exporting port, in a deal expected to fetch up to A$700 million.
And China’s Shenhua Group, AGL Energy Ltd. and ERM Power Ltd. have been shortlisted to buy Macquarie Generation, New South Wales’s largest electricity generator, in a deal expected to raise around A$2 billion, a person familiar with the matter said Tuesday.
ERM Power Chief Executive Philip St Baker confirmed it was on the short list for Macquarie Generation. A spokeswoman for AGL Energy declined to comment. A Shenhua spokesman didn’t return a call seeking comment.
“The sale or lease of targeted state-owned assets allows the government to focus on core services such as hospitals, transport and schools,” New South Wales Treasurer Mike Baird said in a statement. “At the same time, recycling mature assets on our balance sheet gives us the flexibility to invest in major, new infrastructure projects across the state.”
There will likely be more privatizations to come. The New Zealand government plans to sell 49% of electricity-and-gas retailer Genesis Energy Ltd. and 23% of Air New Zealand Ltd., which together would raise an estimated 1.35 billion New Zealand dollars (US$1.62 billion).
Australia’s Education Minister Christopher Pyne said last week that selling the nation’s US$22 billion student-debt portfolio would not be “insensible.” “Britain have sold their [student] debt as an asset and we should investigate whether that is a sensible move for us to do so,” Mr. Pyne said on ABC’s Q&A public affairs program.
Meanwhile, banks are currently pitching for a mandate to conduct a review of the financial ramifications of selling Medibank after Australia’s government decided last month that there was “no compelling policy reason” for it to continue owning it. Australia’s Minister for Finance Mathias Cormann said results of the study will be due by February.