Thursday, January 27, 2011

Asset sales don't add up

Over on, Bernard Hickey analyses the government's plans for asset sales. His conclusion? They just don't add up:

The theory is that for the sale to make immediate sense then the dividends given up would have to be less than the interest costs of the debt not incurred by selling the asset.


In total, the four SOEs potentially up for sale generated total dividends last financial year of NZ$732.5 million and shareholder (government) equity stood at NZ$9.642 billion. This implies a combined (and very raw) dividend yield of 7.6% last year.

Yet the government is currently having to pay around 5.5% for the new debt it is selling, mostly offshore.

So on the face of it the government is a net loser by selling half of these state assets and avoiding having to raise new debt.

So, quite apart from any ideological opposition to the government parting with strategic assets and privatising monopolies, its a bad financial decision for New Zealand. Despite all Key's scaremongering about debt - a threat he was dismissing only six months ago - privatising these assets will see it increase, not decrease. But then, its not about doing what's good for New Zealand, or what makes sense financially for the government - its about doing what's good for National's donors and cronies. And they want those monopoly rents to line their own pockets, and they're going to get their government to give them to them.

During the 90's privatisations were conducted corruptly, to the detriment of New Zealand and for the enrichment of a greedy few. This is just more of the same. We should not tolerate it.