Does a $6 billion return change your view on asset sales?
The Government is estimating a $6 billion reduction in net debt after the sale of the state-owned enterprises - but concedes the savings on finance costs will be less than what it would have booked from dividends and retained earnings if it kept them.
Treasury forecasts released today in the Government's budget policy statement outline the forecast fiscal impact of selling up to 49 per cent in each of the four State-owned power companies - Mighty River Power, Meridian, Genesis Energy and Solid Energy - and by reducing the Crown's current shareholding in Air New Zealand.
They assume a price of $6 billion - the midpoint in previous estimates of a $5 billion to $7 billion sale price - and a corresponding drop in finance costs of about $266 million by 2016.
But the trade-off is the loss of an estimated $200 million in dividends by 2016 and the loss of $360 million in forecast foregone profits in the same year.
Documents supplied today state that the overall fiscal impact of selling a partial stake in the SOEs is a reduction in net debt, but the Government's operating balance will also be smaller, because foregone profits would reduce the surplus.
The Government campaigned at the last election on selling a stake in the SOEs and Finance Minister Bill English today defended not making today's figures available before the election to inform the debate.
That was because the Government had not made decisions "which would then trigger Treasury incorporating events in the forecast".
"Since the pre-election fiscal update the government has confirmed its plans to proceed with cabinet decisions and initial work has now been completed."
He said today's forecasts had been complied using "where possible" publicly available information spread evenly across the forecast period.
"So these estimates today are not refined judgements about what will actually happen. They are rough estimates."
That included the estimated $6 billion sale price, which was simply the midpoint of previous estimates of the sale price.
He reiterated meanwhile that the main driver behind the Government's decision to sell was to reduce debt and get back into surplus faster.
"We are firmly focused on keeping the Government's overall debt as low as possible and that is the most important consideration over the next few years."
He defended the $100 million a year gap between the loss of forecast earnings and dividends, and the reduction in finance costs.
"Would you be willing to increase the mortgage on your house to go and borrow the money to buy shares on mighty river power.?
"You would expect any commercial business to exceed the cost of crown borrowing but it comes with a degree of risk."
He reiterated, meanwhile, that there was still huge uncertainty about the price.
"Ultimately the impact will depend on the actual price and that will be driven by a market view of what these companies are worth. If the market believes these companies will be very profitable then they will pay more for the shares.
"If they believe these firms will be less profitable then they will pay less."
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