Monday, May 11, 2015

Brian Gaynor: Companies more transparent when they’re listed

One of the major issues raised by the Ports of Auckland wharf expansion controversy is whether Auckland ratepayers have greater transparency and more influence over the company than they did when it was listed on the NZX.

Similar transparency and influence issues can be raised regarding Air New Zealand, Genesis Energy, Meridian Energy and Mighty River Power, all NZX listed and more than 50 per cent owned by the Crown.

In October 1988 Ports of Auckland, which was established under the Port Companies Act 1988, purchased all the commercial port activities of the Auckland Harbour Board for $250 million. This was consistent with reforms introduced to reinvigorate the the country’s inefficient port sector.

Following local government reforms in 1989 ownership of Ports of Auckland was transferred to the Auckland Regional Council (80 per cent) and Waikato Regional Council (20 per cent).

In September 1993 the Waikato Regional Council sold its 20 per cent stake to the public at $1.60 a share. Ports of Auckland listed on the NZX a month later with the Auckland Regional Council retaining 80 per cent – through Auckland Regional Holdings – and the public owning 20 per cent.

The port company was a successful stock exchange listing, particularly as far as shareholders were concerned. However, on April 1, 2005 Auckland Regional Holdings announced a takeover offer at $8.00 a share compared with the pre-bid price of $6.45.

Grant Samuel valued the company between $7.68 and $8.55 a share, the offer was successful and Ports of Auckland delisted from the NZX on July 22, 2005.

The port company was communicative and transparent when listed. It made 51 announcements to the stock exchange in 2004 including a monthly volume index, shareholder letters, reports and additional announcements. These stock exchange releases received fairly widespread media and analyst coverage.

Its annual meeting, which was held at the Hilton Hotel on Princes Wharf, gave shareholders the opportunity to question the board about the company’s operations and strategy.

Unfortunately Ports of Auckland’s communications and transparency have dropped dramatically since it delisted from the NZX. Last year it had only 14 media releases, compared with 51 stock exchange announcements in its last calendar year as a listed company, and it no longer publishes a monthly volume index.

Many of last year’s media releases were fairly light in terms of substance, the company’s annual meeting is no longer open to the public and minutes of these meetings cannot be found on the company’s web site.

There is widespread support for 100 per cent public ownership of Ports of Auckland yet ratepayers were far better informed about the company when it was listed on the NZX.

In October 2006, just over twelve months after the successful takeover, Ports of Auckland announced it was looking at ways to work more closely with Port of Tauranga, including a possible merger with the Mount Maunganui company.

Ports of Auckland Chief Executive Geoff Vazey was quoted as saying; “We are having constructive talks (with Port of Tauranga) covering a range of issues and options. We are mindful of the responsibilities both companies have to our shareholders and stakeholders and we are looking at areas where there might be benefits that we can readily achieve, reflecting the complementary nature of our operations and skills”.

Port of Tauranga enthusiastically endorsed the proposed merger at its October 2006 annual meeting but withdrew from formal talks in March 2007 because “Auckland Regional Holdings, the owners of Ports of Auckland have to date been unable to decide whether the merger is worth undertaking”.

There is a strong possibility that the Port of Tauranga merger would have proceeded if the Auckland port company had remained listed because under that regime Ports of Auckland’s board would have been responsible for the merger decision rather than the politically influenced Auckland Regional Holdings.

A merged company would have been less likely to propose an Auckland wharf expansion because it would be in a strong position to rationalise activities between the Auckland and Mount Maunganui ports.

The clear conclusion from recent developments at Ports of Auckland is that ratepayers may have had more influence over the company – and enjoyed far more transparency – when the company was listed on the NZX.

Partial privatisation can be a better option for ratepayers than full political control, particularly as voter turnout is only 35 per cent in Auckland local elections. Under this scenario a political group with the support of  just 18 per cent of the total Auckland electorate could gain effective control of Ports of Auckland.

Is this a preferred option to partial privatisation and a stock exchange listing?

How do the listed Air New Zealand, Genesis Energy, Meridian Energy and Mighty River Power compare with with the non-listed Crown Fibre Holdings and Housing New Zealand in terms of communications, transparency and taxpayer influence? The latter two have been chosen because they have been in the spotlight recently and are 100 per cent government owned.

In the past twelve months Air New Zealand has made 90 stock exchange announcements, Genesis Energy 51, Meridian Energy 56 and Mighty River Power 68.

Meanwhile Crown Fibre Holdings has had 5 press releases and 5 newsletters while Housing New Zealand issued 39 press releases.

The four NZX listed companies made a number of pro forma statutory stock exchange announcements but their overall disclosure levels have been extremely good. Air New Zealand and Meridian Energy have monthly operational reports while Genesis Energy and Mighty River Power release quarterly operating statistics.

The two 100 per cent government owned entities have a much lower level of transparency. Crown Fibre Holdings, which was established to manage the Government’s $1.5 billion investment in Ultra-Fast Broadband infrastructure, included statistical data in its June 2014 year annual report but updated statistics are difficult to find.

Crown Fibre’s latest Business up date states that 9,350 KM of fibre had been built by the end of 2014 with 579,221 users able to connect. However it didn’t reveal how many potential users have actually connected to the network.

Housing New Zealand issues a large number of press releases but many of them are general in nature with the following headings; “Great-nan over the moon with new home in New Lynn”, “New house, new life for mum, dad and their ten” and “A new ‘home sweet home’ for Glen Innes locals”.

There is nothing wrong with these releases but Housing New Zealand owns 68,229 houses with a portfolio value of $18.6 billion at an average of value of $246,200 per house. The company’s annual report is extremely detailed but it would be great to have monthly or quarterly operating statistics updates together with discussion papers on important housing issues and the current housing crisis.

There is substantial opposition to partial privatisation in New Zealand but one of the major benefits of a stock exchange listing is that these companies are far more transparent than 100 per cent owned Crown or local authority owned entities. Ports of Auckland released far more information when it was listed while the current Government controlled partial privatisations, Air New Zealand, Genesis Energy, Meridian Energy and Mighty River Power, have top class communications and transparency policies.

The other issue is whether partially privatised companies are more responsive to the community than 100 per cent owned Crown or local authority entities. There are clearly different views on this issue but the Ports of Auckland wharf extension controversy gives a strong message that a stock exchange listed company may be more responsive to the needs of all stakeholders, including the local community, than entities under 100 per cent political control.

Brian Gaynor is an investment analyst and the Executive Director of Milford Asset Management. 

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