Treasury warned the Government that cutting its stake in Air New Zealand after the sale of Meridian Energy would expose the Crown to risk, according to documents released today.
The warning came because Treasury was concerned the market would not have an up-to-date picture of the airline's finances. It wanted the airline stake sold either before the Meridian sale or next year.
In November the Government raised more than $350 million when it cut its stake in Air New Zealand from 73 per cent to 53 per cent.
The sale came weeks after it raised close to $1.9 billion from the partial sale of power generator Meridian.
However, in June Treasury indicated that the sale of Air New Zealand shares should be conducted ahead of the Meridian sale in September or October, or in early 2014.
A sale in November might be possible but it would be done when the market was not informed of recent financial performance, Treasury documents released today show.
"This may put the Crown at risk if anything goes wrong or if significant information is revealed subsequent to the transaction (especially if retail participation is included)," the documents said.
A spokesman for the Treasury said the warning in June was subject to further legal advice, which later signalled that November was an appropriate window for the sale, and was consistent with rules around when company directors could trade in shares.
''In addition a due diligence exercise was undertaken to provide assurance that the Crown was not in possession of insider information.''
The documents also show Treasury was initially concerned its recommendation of a block sale of the airline's shares might make it difficult to ensure New Zealand ownership remained over 85 per cent, because domestic demand "may be hard to source". A block sale means the deal is negotiated off-market by brokers.
Ultimately demand from New Zealand investors was stronger than expected, resulting in the Crown selling shares at the same price that Air New Zealand stock had been trading at ahead of the sale.
While the Government was criticised for a lack of transparency over the details of the deal, documents show it was advised to stay quiet about how the sale was to be conducted and its exact timing, otherwise there was a risk speculators could manipulate the price of the shares.
Ministers were told they could talk about the fact that the aviation industry was volatile, that investors could already buy shares in the company and that there would be no public pool.
However revealing that the sale would be a block trade carried "medium risk", while signalling exactly when the deal would take place was a bad idea.
"This exposes the Crown to a high level of risk of market manipulation and provides an incentive for existing investors to sell down shares ahead of these timeframes," the Treasury papers said.
- Fairfax Media