Speaker 1: Kyoda. I'm Chelsea Daniels and this is the Front Page,
Speaker 1: a daily podcast presented by the New Zealand Herald. National
Speaker 1: has kicked off twenty twenty five by driving headfirst into
Speaker 1: plans for economic growth, and it wasn't long until act
Speaker 1: through in their two cents. Party leader David Seymour made
Speaker 1: privatization a key focus of his State of the Nation speech,
Speaker 1: and while Prime Minister Christopher Luxon said he doesn't want
Speaker 1: to sell anything off this term, he's suggested it could
Speaker 1: be campaigned on in next year's election. It's a road
Speaker 1: that New Zealand has gone down before, selling everything off,
Speaker 1: from banks to energy companies in the eighties and nineties,
Speaker 1: and only a few state owned enterprises remain. So what
Speaker 1: could be on the shopping block and would anyone actually
Speaker 1: want to buy them? Today? On the front Page, we
Speaker 1: put those questions to Greg Smith, head of Retail are
Speaker 1: Devon Funds Management. Greg, the words privatization and assets sales
Speaker 1: are used interchangeably, I guess, But is there actually a
Speaker 1: difference between the two. How would you define them?
Speaker 2: Look effectively the same thing? But yeah, what we're talking
Speaker 2: about potentially here, privatization is sales and assets by the government.
Speaker 2: And look, I think it's an interesting point perhaps every
Speaker 2: to start. So I suppose the philosophical point of view,
Speaker 2: I think probably fundamentially government is not really a good
Speaker 2: owner of businesses that were sort of talking about, and
Speaker 2: that ones are potentially up for privatization. And yeah, I
Speaker 2: think it is a bit of a win win situation
Speaker 2: when the government engages in assets sales and privatization. If
Speaker 2: it's done right. Yeah, for the most part, the private
Speaker 2: sector is the best owner of many of these assets.
Speaker 1: But that's the kicker, isn't it. If it's done right,
Speaker 1: didn't we have to buy back the likes of Air
Speaker 1: New Zealand.
Speaker 2: Yeah, that's right. And it hasn't worked perfectly all the time.
Speaker 2: And obviously in New Zealand COVID hit so that was
Speaker 2: a fairly sort of extraordinary circumstance. And if you go
Speaker 2: a bit further back as well, yeah, there's been other
Speaker 2: examples where it hasn't perhaps worked out particularly well. Look
Speaker 2: at the eighties and nineties, it was very much a
Speaker 2: mixed bag. There was a transfer of value from taxpayers,
Speaker 2: while a select few did quite well. You think of
Speaker 2: the government printing office that was sold to rank in
Speaker 2: the late eighties. Then there was Telecom New Zealand in
Speaker 2: nineteen ninety and then there was also Transrail which was
Speaker 2: sold and inadibly listed and effectively failed. So they weren't
Speaker 2: great examples, but you think in more recent times the
Speaker 2: mixed ownership model can and does work when it's done right.
Speaker 2: It's proved to be highly successful. When you look at
Speaker 2: the gentiles there really are a shining example. You've got
Speaker 2: wonderful assets that New Zealand investors have been able to
Speaker 2: invest in directly. I mean, what government's actually done quite
Speaker 2: well as well. If you think about those it's been
Speaker 2: run arguably more properly than they would otherwise, and their
Speaker 2: dividends flying back to the government accordingly.
Speaker 1: Well, looking at what the government actually currently owns, it
Speaker 1: doesn't seem like there's a lot left. Sir John Key
Speaker 1: himself said as much, literally saying there's nothing to sell
Speaker 1: when he was on it with Hosking recently. Is he right?
Speaker 2: Look, I think there are a few options here, and
Speaker 2: then you know, let's just sort of stick with the
Speaker 2: most recent examples. You know, they still own significant stakes
Speaker 2: in the gentailers, so yeah, they could sell that down
Speaker 2: fur there's at portocol if you like. And you know
Speaker 2: the reason for the government having or retaining a stake
Speaker 2: in the airsets suppose it's a matter of from their
Speaker 2: point of maybe national security or national interest or having
Speaker 2: a strategic stake, but a lot of that can be
Speaker 2: achieved or protection of that or ring fence if you like,
Speaker 2: through not owning a stake. You think of legislation, You
Speaker 2: think of regulation. Look at look at Auckland Airport. Yeah,
Speaker 2: that's actually regulated. You've got on set which is in
Speaker 2: private hands, but it's effectively being protected to that extent.
Speaker 2: Now there are other assets, I think, which are also
Speaker 2: crying out the capital, so it's not it's not too
Speaker 2: narrow field. You look at transpower crying out for investment.
Speaker 2: They of course manage and operate our electricity transmission system.
Speaker 2: So I think that that would be a very well
Speaker 2: received areset. You know, think got to think as well
Speaker 2: that you know, the world is a wash with capital
Speaker 2: crying out the high quality infrastructure assets. We saw that
Speaker 2: with the sail down and the gentailers, and I think
Speaker 2: we would see that the game with something along the
Speaker 2: lines of transfer. Of course, EWI Bank is another often
Speaker 2: kicked around and mentioned you know that that is a
Speaker 2: gain an asset that could quite possibly sort of become privatized.
Speaker 2: And it's also stepping back, you know, when we're talking
Speaker 2: about the banking sety, we're quite unique in a way
Speaker 2: in terms of, you know, we have big banks operating
Speaker 2: here in the country, but we don't have any private
Speaker 2: ownership as such. Obviously their own big banks own by
Speaker 2: Australian companies effectively and New Zealanders invest into those companies.
Speaker 2: But you could also see a scenario where the government,
Speaker 2: the government hands out or grants a banking license to
Speaker 2: these banks to also sort of force a sale back
Speaker 2: to New Zealanders of the New Zealand operations of those banks.
Speaker 2: So I think that's something as well that could be
Speaker 2: looked at some point. I think that'll be amazingly well received.
Speaker 2: We've also got the rest you mentioned in New Zealand
Speaker 2: and we could look at sell down of the rest
Speaker 2: of that. And I suppose you know, the other thing
Speaker 2: that we can ever take away from being what's being
Speaker 2: done globally and just across the Tasman when you look
Speaker 2: at the public private model that's been highly successful. When
Speaker 2: you think of likes of toll roads, they need investment,
Speaker 2: So does it really make sense for it to sit
Speaker 2: in public hands and they get underinvested, they perhaps don't
Speaker 2: get run as well as they could have. You think
Speaker 2: toll roads, you look at those in Australia, you look
Speaker 2: at those in Europe, and these assets aren't being given away.
Speaker 2: You know, they typically come with say a twenty year
Speaker 2: at least or something like that, and they operate to
Speaker 2: get has twenty years to exact what it can from
Speaker 2: the asset and run it in the optimal fashion. And
Speaker 2: so that can work quite well as well. And then
Speaker 2: if we step down from sort of the national level,
Speaker 2: I think there's also lots of high quality local government
Speaker 2: assets which could in some cases address creaking council balance sheets.
Speaker 2: You think boorts, airports and the likes. So I'll actually
Speaker 2: argue that that there's quite a few things we could
Speaker 2: look at in terms of this privatization journey, starting with
Speaker 2: the gent tailors, but there's a variety of other assets
Speaker 2: we're talking about here as well.
Speaker 1: What are the benefits of actually selling off what we've
Speaker 1: got left?
Speaker 2: Though?
Speaker 1: Why not just hold on to them?
Speaker 2: I just think we fundamentally the government or public, the
Speaker 2: public sector is not a natural owner of these assets.
Speaker 2: And you can see a great example of how these
Speaker 2: assets can perform or underperform when in the hands of
Speaker 2: public sector versus private is Port of Taroinger versus of Auckland.
Speaker 2: Port of Taroger has gone from strength to strength as
Speaker 2: a listed company become the largest port in New Zealand.
Speaker 2: What's Vulkland has had mishap after mishap, after some strategic implosion,
Speaker 2: and it's been a bit of a disaster. So I think, yeah,
Speaker 2: right there, you've got a case. If you're looking for
Speaker 2: a case of for private ownership and against public ownership,
Speaker 2: I think that very very much stands as one. And
Speaker 2: so we're not talking about giving away these assets and
Speaker 2: losing control, and that can be done and via regulation,
Speaker 2: via legislation often of courses we've seen the government or
Speaker 2: local government perhaps in some cases would hold a staken
Speaker 2: in these assets and can sort of work gether. But yeah,
Speaker 2: the mixed ownership model works. It's highly successful. It's been
Speaker 2: proven so locally is an extent with the gent tailors,
Speaker 2: but also internationally as well. And yeah, the government can
Speaker 2: sort of then use the funds obviously from these cell
Speaker 2: downs to invest in other areas and also to address debtlage.
Speaker 2: You look at the governments space of an infrastructure deficit
Speaker 2: of two hundred billion. You know, the other way that
Speaker 2: this is going to be addressed is not politically palatile.
Speaker 2: I suppose you look at talking high taxes, talkings or
Speaker 2: raising rates and the like. So I think, yeah, it
Speaker 2: really is a win win putting these assets more in
Speaker 2: the hand of the private sector it's a natural owner,
Speaker 2: and then also enabling the government to sort of get
Speaker 2: on and invest in areas it's probably more comfortable with doing.
Speaker 2: The other point about all this is when you move
Speaker 2: from sort of a public to a private ownership model,
Speaker 2: it really gives New Zealanders the opportunity to invest in
Speaker 2: some great assets. At the moment. You know, we have
Speaker 2: a lot of key we investors having to invest in
Speaker 2: infrastructure assets in Australia because they can't do so here.
Speaker 2: So I think that's you know, that's really important as well.
Speaker 2: We're a very patriotic, but yeah, sometimes the extraal scope
Speaker 2: of what we can invest in New Zealand is very limited.
Speaker 2: So like a natural home for a lot of these
Speaker 2: assets that we're talking about when they're privatized and when
Speaker 2: they find their way into the stock exchange, it would
Speaker 2: be key we save with funds. So I think it's
Speaker 2: a really great story around in a bit of a
Speaker 2: win win.
Speaker 3: Ownership protects the dignity of everyone, especially those who can
Speaker 3: least afford it. Privatization, mister speaker, means that if you
Speaker 3: can't afford it, you don't get it. It literally means
Speaker 3: that people who cannot afford their medicine die.
Speaker 1: Is there anything that we probably shouldn't privatize? I'm thinking
Speaker 1: probably the big one is healthcare. One example that people
Speaker 1: usually bring up of courses America, and that's for obvious reasons.
Speaker 1: How realistic is it that any New Zealand government could
Speaker 1: privatize parts of our health system? And do you think
Speaker 1: investors would even want to snap it up?
Speaker 2: Well, I think we have seen offshore that privatization of
Speaker 2: health air sets and that actually worked quite well. Again,
Speaker 2: you you get more invested. Obviously, it's a critical service.
Speaker 2: And yeah, there is a spose and awareness of going
Speaker 2: down the privatization path and what that might bring. But
Speaker 2: I mentioned you can still exact control without having for
Speaker 2: ownership stake, and it's it's also about specialism as well,
Speaker 2: I mean, you know, we have some once you get
Speaker 2: into that private reny, you have some fantastic specialists in
Speaker 2: running hospitals and running health systems openly. And perhaps you
Speaker 2: obviously we've seen with not recent governments, the you know,
Speaker 2: the the issues that have occurred in the in the
Speaker 2: health sector. Yeah, perhaps so some of them might not
Speaker 2: have occurred in the private sex. But I do agree
Speaker 2: it is a little bit of jugging it perhaps a
Speaker 2: little bit more sensitive than privatizing other areas. I suppose,
Speaker 2: you know, defense would be another natural one matters of
Speaker 2: genuine national security. I think that is probably less palatable
Speaker 2: as well.
Speaker 1: Yeah, because when we hand over companies or assets to
Speaker 1: private investors private companies, is there any way that we
Speaker 1: can legislate or bring in rules to make sure that
Speaker 1: these companies don't put profit over people?
Speaker 2: I guess absolutely, And that's what the government is there for.
Speaker 2: The government is there to legislation. So you know, any
Speaker 2: any agreement can have causes and can have targets and
Speaker 2: KPIs and things like that, so certainly can be drawn
Speaker 2: into any agreement. I mean, the government holds these assets,
Speaker 2: they hold the cards, so you know, you you may
Speaker 2: have you may well have a buyer for these assets,
Speaker 2: but you know, the celler can always put in the
Speaker 2: clauses they want and the government is no different, So
Speaker 2: we can we can ring fence the government can ring
Speaker 2: fence protections into these matters. Of course, there is that
Speaker 2: sensitivity as you say, about profit tenally being prioritized over people,
Speaker 2: and that is obviously quite relevant when we're talking about
Speaker 2: services like hospitals and the like. Said, yeah, it's worked
Speaker 2: very very well in the in the in the gentailor sector,
Speaker 2: you've seen, Yeah, obviously you've seen. You've got a number
Speaker 2: of companies there as well, so you've got a natural
Speaker 2: competition and that's probably that's probably an aspect of it
Speaker 2: as well. When the asset has more of a monopolistic
Speaker 2: position or or strategic position, then that may it's all
Speaker 2: the more important that the eyes are dialed and the
Speaker 2: teaser cross from the respect to securing those protections.
Speaker 4: Long the gym.
Speaker 1: The UK privatized the Royal Mail about a decade ago,
Speaker 1: it seems to be going, all right, what about New
Speaker 1: Zealand Post That's.
Speaker 2: Yeah, that would certainly be up for grabs as well.
Speaker 2: Then I guess that's an interesting one as well, because
Speaker 2: you've seen with New Zealand Posts it's been it's been
Speaker 2: supported by the government for for a long long time. Yeah,
Speaker 2: it's only supposed with the advent, you know, they've got
Speaker 2: a primary competitor now in the like of freightways. That's
Speaker 2: support has probably it's not been great. It's not been
Speaker 2: great for the New Zealand Posts. You know, it's been
Speaker 2: quite an uneconomic business. And really, you know, the way
Speaker 2: you get to become economic is having the reality a
Speaker 2: business economics thrust upon you. And yeah, with government support
Speaker 2: and you could go sort through economic textbooks and providing
Speaker 2: you know, subsidies and so on to organizations is naturally
Speaker 2: not the optimal way to ensure that an optim optimal manner.
Speaker 2: So I think with the NZ Post that government has
Speaker 2: actually started to more recently say it's got it. You know,
Speaker 2: it's got things. I've got to be economic, and that's
Speaker 2: sort of starting. I think what you're seeing me you know,
Speaker 2: we're starting to potentially see price arisers coming through and
Speaker 2: so on. I've been kept artificially low for a long time.
Speaker 2: So again I think that would be that would actually
Speaker 2: be quite a good story as well in terms of
Speaker 2: a privatization. One, you've got a business which is not
Speaker 2: operating in an optimal bassion, but could your perhaps do
Speaker 2: more so under private ownership.
Speaker 1: I found an interesting stat the other day while researching this.
Speaker 1: The total value of government owned assets was five hundred
Speaker 1: and seventy point nine billion dollars. Could that comprises of property,
Speaker 1: plant and equipment fifty percent, financial assets forty five and
Speaker 1: other assets five percent? Now that's kind of suggests to
Speaker 1: me that there's a lot of buildings and land in
Speaker 1: the government's ownership. Is that right?
Speaker 2: Yeah, that would be right. And again, does that make
Speaker 2: a lot of sense? I mean, when we've got a
Speaker 2: government faced with very high levels of debt, you got
Speaker 2: we've got an economy that's in the worst per capita
Speaker 2: recession in over thirty years. Yes, sitting on unproductive assets
Speaker 2: doesn't really make a lot of scent. Now is the
Speaker 2: time as much as any that we need to extract value,
Speaker 2: or the government needs to extract value from literally what
Speaker 2: it is sitting on top of So hoarding unproductive assets
Speaker 2: doesn't make a lot of sense. But say, yeah, the
Speaker 2: same token you don't want to see give away the
Speaker 2: crown jewels. And I think we've seen that a little
Speaker 2: bit with local governments. Recently there's been assets that have
Speaker 2: been suggested to be up for sale and then they've
Speaker 2: been held on to it. I think that the Dnedian
Speaker 2: Council is probably very good example recently. So yeah, you
Speaker 2: do need to be sort of cognitant of that, but
Speaker 2: it also it needs to need also needs to be
Speaker 2: an economic decision as well as an emotional decision. So
Speaker 2: I think probably now more than ever is the time
Speaker 2: to really have a thorough review of what the government
Speaker 2: is sitting on, whether it's the best owner of those assets,
Speaker 2: whether it could extract a more economic return by going
Speaker 2: where either full sales or going down a mixed ownership
Speaker 2: model in some instances, And yeah, now is a really
Speaker 2: important time to be doing that.
Speaker 5: How is it possible that the Bank of New Zealand
Speaker 5: wants to close down coal mines? Yeah, it writes to
Speaker 5: them and says you can't have a card debit credit.
Speaker 5: I think why it's utterly unacceptable, utterly unacceptable, and that's
Speaker 5: what we've got to change. And we've made it very
Speaker 5: clear in our comments and I hope the bank CEOs
Speaker 5: are noticing our language, which is where you've got to
Speaker 5: finance things that kiwi's need. Their job is not politically posturing.
Speaker 5: Their job is to finance the things that kiwi's need.
Speaker 1: I'm not sure if you've seen the debate over the
Speaker 1: last week. I Z telling a coal mining firm it'll
Speaker 1: have its banking services withdrawn over the next five years.
Speaker 1: Government ministers have intervened, including Prime Minister christpher Luxen. But
Speaker 1: in terms of that, the government's hands are kind of tied,
Speaker 1: aren't they. They can't really force a private bank to
Speaker 1: do what they want. They could have been z if
Speaker 1: the government still owned it, I suppose, but we sold
Speaker 1: that off to the Aussies back in the nineties. So
Speaker 1: is this a timely warning for the government that selling
Speaker 1: assets won't necessarily mean in future that they get to
Speaker 1: say in what those companies end up doing.
Speaker 6: Like you think, it's how it's sort of structured, so
Speaker 6: you're plot well, see with the benefit of hindsight is
Speaker 6: open there, but you need to be thinking about the
Speaker 6: protections you need to put in place, and that can
Speaker 6: be structured into any agreement so that it can be.
Speaker 2: Through legislation, through regulation. Obviously you don't have the government
Speaker 2: had retained a staker, would have more of more of
Speaker 2: a say, but the begging sector is a good example.
Speaker 2: And as I sort of pointed out earlier that our
Speaker 2: biggest banks are owned by Australian companies and Australian shiholders,
Speaker 2: albeit they're also New Zealand shiolders, and it's something the
Speaker 2: government could could really look at. I mean, it has
Speaker 2: a massive ability to change the landscape as it were.
Speaker 2: You know, these banks hold banking licenses in New Zealand.
Speaker 2: The New Zealand arms of these banks has historically been
Speaker 2: highly profitable in many years it's been their best performing businesses.
Speaker 2: So I think, you know that that's something that probably
Speaker 2: should seriously be looked at as compelling these banks to
Speaker 2: sell down, sell off part of the New Zealand operations
Speaker 2: and also allow that stakes and that to not any
Speaker 2: being perhaps held both government but also by hey we investors,
Speaker 2: including including key We Saber schemes. So I think it's
Speaker 2: something to really look at. And then also what you
Speaker 2: talk about with prospective being z of course we do
Speaker 2: you know I had mentioned earlier that a Kiwi bank
Speaker 2: could be one option for a selldown and yeah, and
Speaker 2: maybe the government would would sort of figure that into
Speaker 2: any into any sale. Obviously want to keep a decent stuff,
Speaker 2: but the government actually has held on to pretty key
Speaker 2: strategic stakes and a lot of assets are that they're
Speaker 2: sold in more recent times disposed in particular those Gentailers
Speaker 2: and Greg.
Speaker 1: Given New Zealand's history with privatization, how likely is it
Speaker 1: that voters would choose asset sales if it's on the
Speaker 1: agenda next year in the election.
Speaker 2: I think the most recent experience of it, and often
Speaker 2: what is in recent memory is more relevant, and I
Speaker 2: think a lot of voters will be thinking that the
Speaker 2: sell down of the gentailers has worked quite well. There's
Speaker 2: been dividends flying back to the government. Okay, the government
Speaker 2: has retained the stake, but these businesses have done very
Speaker 2: very well. You look at the performances generally of their
Speaker 2: share prices. The dividends have been flowing to shareholders. Since
Speaker 2: the IPO, you've got competition in the space. It really
Speaker 2: has been a ringing endorsement of that sort of mixed
Speaker 2: ownership model. There's always an awareness of selling off the
Speaker 2: crown jewels and that I think that's always going to
Speaker 2: be a feature. So I think voters will one today. Yeah,
Speaker 2: we'll prospect to s itselves that might or might not
Speaker 2: be on the table. You know what protections will go
Speaker 2: along with them, But I think philosophically many will be
Speaker 2: aware that the natural owner of a lot of the
Speaker 2: assets that we're talking about is not the government, and
Speaker 2: it's often more optimal to a decent chunk of ownership
Speaker 2: to reside in private hands.
Speaker 1: Thanks for joining us, Greg, My pleasure. That's it for
Speaker 1: this episode of the Front Page. You can read more
Speaker 1: about today's stories and extensive news coverage at NZDHERLD dot
Speaker 1: co dot nz. The Front Page is produced by Ethan
Speaker 1: Sills and Richard Martin, who is also a sound engineer.
Speaker 1: I'm Chelsea Daniels. Subscribe to The Front Page on iHeartRadio
Speaker 1: or wherever you get your podcasts, and tune in tomorrow
Speaker 1: for another look behind the headlines.