Further clarity over the Government's earlier announcement that it intends extending the "Mixed Ownership Model" for some of its commercial assets to free up Crown capital was provided in the 2011 Budget Statement to Parliament this month.
The Government proposes that if it is successful in the November election, from 2012, a 'Mixed Ownership Model' (most likely through an Initial Public Offering process) will be applied to the four State-owned electricity companies - Mighty River Power, Meridian, Genesis and Solid Energy. It will also reduce its majority shareholding in Air New Zealand.
The expected combined proceeds from offering minority stakes in these five companies are likely to be between $5 billion and $7 billion, which could increase the New Zealand sharemarket's capitalisation by up to 10%.
The Government has set a number of conditions that will need to be met before the Mixed Ownership Model is implemented for these companies:
- The Government will maintain a majority shareholding stake by owning more than 51% of each company.
- New Zealand investors are guaranteed a place at the "front of the queue" for shareholdings.
- The companies involved will provide good opportunities for investors.
- The capital freed up will be used to fund new public assets (i.e., the plan is a reorganisation of the asset side of the balance sheet to fund "higher priority" areas rather than requiring increased borrowing).
- The Government is satisfied that industry-specific regulations will adequately protect New Zealand consumers.
For further information on this proposal and other details of Budget 2011 see the CCH New Zealand Budget Report 2011 (prepared by Bell Gully). A copy of Budget 2011 and related documentation are available on the Treasury's Budget 2011 homepage here.