Flogging the family silver to save the State's skin
The same old semi-state suspects have been trotted out as potential privatisations as the Government looks to flog the family silver. Nick Webb looks at the prospects for some less obvious but highly valuable State assets
Published 20/06/2010 | 05:00
FACED with a €20bn budget deficit, the Government is now actively looking at selling off some of the legions of semi-state companies and the litter of other State-owned assets. The Department of Finance is preparing a series of proposals to offload some of these baubles, with the €3.5bn-valued Bord Gais and the €5bn-valued ESB as usual the most widely touted.
But don't hold your breath. The principal difficulty in selling these vastly overstaffed companies is the trade unions and employees. Why on earth would they swap a cosy life in the public sector for the less certain world of private ownership?
Well, they might if they got enough money and a big fat stake in the company.
There's a heck of a lot of messy negotiation before either Bord Gais or ESB could be readied up for sale. As well as floating or selling assets to trade buyers, the Government may also consider offloading minority stakes in some State companies. It may be a more politically palatable move.
The National Lottery company, or the operating licence, should be offloaded to the private sector. The semi-state outfit is set to report an operating surplus of about €263m for 2009, with sales a bit dented by the recession.
There are plenty of potential bidders for state lotteries. Just three months ago, the Ontario Teacher's Pension Plan paid more than €468m to buy Camelot, which has the licence to operate the UK lottery for the next nine years. Although the UK lottery had sales of more than €6.49bn last year, the heavily regulated Camelot generated profits of only €36m.
The Irish National Lottery, backed by fellow semi-state firm An Post, will see its licence expire early in 2011. This means the Government has to move fast. The licence for the lottery should be tweaked to make it as valuable as possible -- either by extending the length or the amount of money that can be taken out as a dividend. The lottery's €263m in profits go to good causes, but this may not be the most efficient use of the money. Some form of securitisation of future income, or the sale of the licence, would generate much-needed funds for the Exchequer.
Any new licence should be auctioned off to the highest bidder rather than merely handed over to An Post and the National Lottery company. However, if the National Lottery company actually wins the licence, it should be readied up for sale. It may face some competition as Hungarian, Turkish and French lotteries may also be on the block.
Assuming a new operator takes a bigger slice of profits, a 10-year licence could raise something north of €400m but potentially much more.
VHI should be high on the list for a sale to the private sector. However, the health insurer faces major issues over its financial situation and may need up to €200m in a Government bailout to satisfy regulatory requirements over its solvency ratios. But the VHI is a potentially attractive State bauble with a huge customer base, generating sales of more than €1bn in 2008.
However, before any sale process could begin, there would need to be clarity over risk equalisation and community rating issues. It is thought that a number of pan-European insurers expressed an interest in buying into VHI in recent years -- before the economy turned to dust. Assuming that the market issues could be resolved, VHI could conceivably sell for about €700m.
The ports in Dublin and Shannon Foynes are also potential disposals. Across the water, €700m Scottish-listed container port group Forth Ports had been stalked by the Northstream private equity consortium for months before negotiations ended last month.
Ports were like gold dust during the boom years, with all the UK's main listed port companies, including DD Ports, Peninsular and Associated British Ports, being sold for almost €8bn in 2006. At the peak of the property boom, Irish Continental Group's land assets in the port were the gravy in a €612m bid. The crash in land values has meant that Dublin Port is no longer a property play.
Dublin Port generated €70m in sales in 2008 and was sitting on shareholders' funds of €221m at the end of the year, bulked up by the €109m it received from the sale of the Irish Glass Bottle site. The company is to pay dividends to the State of about €20m over a four-year period. It's not the greatest return in the world, but the semi-state port company could conceivably be worth more than €300m.
RTE is another heavily unionised semi-state that would prove politically unpalatable to sell off. Any threat to its public service remit would cause untold ructions -- especially if someone such as Rupert Murdoch's News Corp was linked to it.
However, the RTE 2 channel could be weaned off licence fee income and forced to survive on advertising alone. It could be run in a similar fashion to Channel 4 in the UK and could then be sold off. Similarly, 2FM could be dressed up and sold off, as radio assets may be coming back into fashion for buyers.
But the most obvious way for the State to extract value from RTE -- other than developing the Montrose campus -- would be to sell off its transmission network. RTE is the only State broadcaster in Europe that still owns its transmission network (all the masts and transmitters). Industry sources suggest that Arqiva -- which was part of the Onevision digital telly consortium here -- could be interested in these assets, which could attract a price tag of between €80m and €100m.
State forestry company Coillte owns close to 12 per cent of the country's land mass. But it's hard to tell what it actually does. Coillte is a mish-mash of forestry, alternative energy and wood panelling.
Fine Gael has proposed merging Coillte with Bord na Mona and the Forestry Research Group to create a new bio-energy agency. This might make sense ahead of a sale. However, integrating all the semi-state units would be something of a nightmare, so any sale would have to be in the medium term.
David Cameron's new government is looking to raise about €10.8bn by selling off or floating the Royal Mail. A large chunk of the proceeds could be used to plug the estimated €11.7bn pension fund deficit.
Even so, progress on this disposal will be watched very closely by the mandarins at the Department of Finance on Merrion Street.
Could An Post be sold off? The semi-state is rapidly diversifying into financial services -- although its Postbank venture tanked -- and into mobile phones through the launch of postfone.
Given the strength of trade unions and the potential for political fudge, the sale of a stake in An Post rather than outright disposal could be the most likely option. Could the Government find a trade partner such as Deutsche Post DHL, Pin Group or TNT?
Last year An Post generated slim operating profits of €5.7m, despite sales tumbling to €804m, as the recession, the rise of email and increasing competition hit.
Ireland's water and sewerage services are supplied by local authorities, with varying degrees of ineptitude.
Water is big business, with a number of major transactions across europe in recent years including Macquarie's €9bn buyout of Thames Water in 2006. But the deals haven't stopped, they've just got smaller. Last week, United Utilities sold off its non-regulated interests in the UK and Europe to Veolia Water UK for nearly €209m.
It's clear that water assets are attractive to major infrastructural investors. Combining the water utilities services into one tightly regulated body would be a necessary prelude to any sale, which could generate a decent return for the Exchequer. Naturally, iron-clad commitments on future investment would be needed.
Other local authority assets and income streams should generally be reviewed. The Department of Finance is believed to be studying a proposal to securitise future receipts from parking in the capital. This means the State would get a big lump sum now in return for handing over future parking income.
Any sale or privatisation of the National Lottery, Bord Gais or the ESB would go a long way toward filling the hole in the public finances. But political will may be wanting.
Unless there is a newfound determination to take on the unions, major sales will (in the short term) be about as likely as Uruguay and Mexico playing out a scoreless draw to dump the French out of the World Cup.