Senator the Hon Mathias Cormann
Minister for Finance
Date: Sunday, 28 September 2014
MATHIAS CORMANN: Good morning everyone.
This morning, we are pleased to officially launch the next stage in the Government’s sale of Medibank Private. From today, Australians can pre-register their interest in receiving a prospectus for the Medibank Private Share Offer.
The Government is currently working to finalise a prospectus, which, subject to market conditions, is expected to be available in late October.
Importantly, pre-registration is not a commitment to buy shares. Pre-registering provides Australian residents the opportunity to reserve a prospectus. Any decision on buying shares should of course be made after carefully considering the prospectus once it becomes available.
Medibank Private is Australia’s largest private health insurer and is a very well-known business which has been providing private health cover for almost 40 years.
It provides cover for over 3.8 million people across Australia through its two brands – Medibank and ahm.
The Government is expecting a large amount of interest in the Medibank Private Share Offer and to make sure that all Australians are made aware of the opportunity available to them, we are launching today a comprehensive, national information campaign to promote the pre-registration process. This includes an advertising campaign, a dedicated website; medibankprivateshareoffer.com.au and an information line where Australians can pre-register to reserve a prospectus.
We now would like to show you the pre-registration television advertisement which will be running from today. This ad will inform Australians about the opportunity to pre-register for a prospectus. Newspaper, radio and digital ads will also form part of the advertising campaign and we have provided you with copies of these here today.
From the outset the Government has taken a methodical and very considered approach to the sale process. By launching a pre-registration period today, those Australians who may wish to reserve a prospectus for the Medibank share offer can express their interest in doing so.
This pre-registration period also helps the Government to prepare for the release of the prospectus, expected in October. Those who pre-register and then apply for shares, can be allocated more shares than if they don’t pre-register. Eligible policy holders who pre-register and then apply for shares will receive a greater preferential share allocation. This means that more shares will be allocated to policyholders who pre-register than other members of the public who pre-register. For eligible policyholders who do not pre-register but do then apply for shares, their preferential allocation will be the same as a member of the public who pre-registers.
We propose to offer shares to retail investors as well as domestic and international institutions. Full details of the offer structure will be made available in the prospectus and Medibank Private is, as previously indicated, expected to list on the Stock Exchange by December 2014, as always subject to market conditions.
The proceeds from the sale of Medibank Private will be reinvested by the Government into productivity-enhancing infrastructure through our Asset Recycling initiative.
We would encourage all Australians to now take up the opportunity to pre-register for their prospectus for the Medibank Private Share Offer.
The website and information line are now open. Pre-registration will close on Wednesday 15 October 2014.
I would now like to ask the Chair of Medibank Private, Elizabeth Alexander to also make a few remarks.
ELIZABETH ALEXANDER: Well thank you Minister and thank you all for being here this morning on this beautiful sunny day, a Sunday to wit and of course the day after the Grand Final. Some of you will be winners and some will be losers, but it is what it is. I’d also like to acknowledge the traditional owners of these lands and pay my respects to the Elders past and present.
We at Medibank welcome today’s announcement. Medibank has been working closely with the Australian Government and we are very well prepared. We are excited about this new opportunity for Medibank and what it may bring and we are pleased to be proceeding with this next step that will lead us to our debut upon the Australian Stock Exchange.
We are also pleased that Australians can now have the opportunity to own a share of Medibank in their own right. We are delighted that our customers, eligible Medibank and ahm private health insurance policyholders, will receive a preference in allocation if they apply for shares as the Minister as said.
I also want to take this opportunity to thank our employees and loyal customers and to remind you all that the Medibank that you have trusted for years, is the very same Medibank that will continue to look after your health well into the future. Please be assured that we remain focused on delivering excellent value and services and this will continue. Thank you.
MATHIAS CORMANN: Happy to take some questions from the media.
REPORTER: How much is the float going to be expected to raise?
MATHIAS CORMANN: That is obviously going to be determined when the float proceeds. The Government has not put a price on it, as you wouldn’t expect us to do.
REPORTER: Surely you must, Alan Russell Nine News, surely you must have a ball-park figure when you’re factoring in the Budget. The figure of $4 billion has been thrown around today.
MATHIAS CORMANN: People are entitled to speculate, but the Government is not going to speculate. Obviously our objective is to achieve, subject to a range of other objectives which have been well articulated, the best possible net return for taxpayers. That is what our objective is with this sale.
REPORTER: Why is the Government selling Medibank Private?
MATHIAS CORMANN: It has been long-standing Coalition policy to sell Medibank Private. There is absolutely no good reason for the Federal Government to own a private health insurance business today. Medibank Private is a commercial business, operating in a well-functioning, well-regulated competitive market with 34 private health funds. There is no reason as to why the Government should be involved in that commercial, competitive market. Furthermore, by selling Medibank Private we will remove the current conflict which the Federal Government has by being both the regulator and the largest market participant. Finally, this sale will be good for Medibank Private customers, because Medibank Private, which is already performing very well will be able to perform even better in private hands, we believe, and of course we will be able as a Government on behalf of taxpayers, to release the capital that is currently tied up in Medibank Private and reinvest that in productivity-enhancing infrastructure for the future, which will significantly contribute to our agenda to build a stronger, more prosperous economy.
REPORTER: How will Medibank members benefit from this apart from being first in line for shares?
MATHIAS CORMANN: Policyholders of both Medibank Private and ahm, if they pre-register will get more shares should they apply for shares than members of the general public who pre-register. Medibank Private and ahm policyholders who do not pre-register and then apply for shares will get the same allocation as members of the public who do pre-register. So that is the benefit that is available to the customers of Medibank and ahm.
REPORTER: How many more shares? What does that mean?
MATHIAS CORMANN: Questions around the detail of the preferential share allocations are going be addressed in the prospectus. There are legal restrictions to the level of detail that we are able to release pre-prospectus, which is why we have made the announcement in the form that we have made it today. But the fundamental point here is if you are a policyholder with Medibank or ahm and you pre-register, you will have the opportunity of a greater share allocation if that is what you wish when you apply for shares in Medibank Private down the track.
REPORTER: What do you say to policyholders, particularly older Australians, who specifically joined Medibank Private because it was Government-owned. I spoke to one this morning and he was pretty annoyed, he did join because it was Government-owned and he was pretty upset.
MATHIAS CORMANN: The Government has made a judgement that in 2014 it was no longer appropriate for the Government to run a private health insurance business. Private health insurance is a very well functioning competitive market which is well regulated. There is no public policy reason for the Government to continue to be involved in this market. We believe that on behalf of taxpayers that the capital that is currently tied up in Medibank Private can be used better. Furthermore, I would say to the member of Medibank that you spoke to, that he or she will be able to have access to at least the same level of services into the future if not better because in our view without public ownership, without the restrictions that public ownership brings with it, Medibank Private will be able to go to another level.
REPORTER: What insight, and Morningstar said this week, that Medibank was one of the least profitable insurers in the sector despite being market leader. Why is that the case?
MATHIAS CORMANN: Look I will let Medibank talk about its business. I am here today as the owner talking about the pre-registration process. That is a question that you should address to Medibank Private.
REPORTER: On that can shareholders expect a good return?
MATHIAS CORMANN: Again these are matters that would be addressed in the context of the prospectus. It would be inappropriate for me to go into those sorts of discussions at this point in time.
REPORTER: Will this drive up premiums?
MATHIAS CORMANN: No. This has obviously been part of the public discussion over the past year. And what I would say to you, look no further than the ABC Fact Check, which assessed this particular proposition. The proposition that somehow the sale would drive up premiums. They essentially supported the Government’s assertion that it would not. Two very simple reasons, one Medibank Private post sale will continue to operate in a highly competitive market, will continue to have to bid for customers with 33 other health funds and that will put a natural limit on Medibank’s capacity to lift premiums beyond what is competitive. And secondly premium settings in Australian in the private health insurance market are quite well regulated and there is no change to the regulatory arrangements when it comes to premium settings, which is the reason why we have said for some time, the scoping study confirmed and ABC Fact Check confirmed that the sale of Medibank Private would not contribute to additional increases in premiums. In fact it would be business as usual as we go forward.
REPORTER: What do you say to those who say this is a short term grab for cash?
MATHIAS CORMANN: That’s not true. This is a strategic decision. It is a long standing Coalition policy, it is longstanding policy of the Australian Parliament. The Australian Parliament passed the Medibank Private Sale Act back in 2006. I note that the previous Rudd and Gillard Governments decided not to repeal the Medibank Private Sale Act. Indeed it was the previous government that transformed Medibank Private from a not for profit into a for profit company. This is really about making sure that we can have the best of both worlds. Medibank Private policyholders across Australia are continuing to benefit from high quality services and benefits and the Australian taxpayers are able to benefit from the Government realising the capital that is tied up in Medibank and being able to invest it for other purposes.
REPORTER: How much is the Government spending on this advertising campaign?
MATHIAS CORMANN: These are details that will be released in due course. At this stage we are getting underway with this advertising campaign. It’s in line, the costs of this advertising campaign, indeed the costs of the IPO itself, are in line with what would usually be the case with these sorts of Commonwealth privatisations.
REPORTER: Roughly how much?
MATHIAS CORMANN: Roughly, we will be finalising those numbers, those precise numbers, at a later stage.
REPORTER: There was some talk of job losses. Are there any guarantees to (inaudible)?
MATHIAS CORMANN: If you look at the sale objectives that the Government has set out for the sale of Medibank Private and we have released them in various statements since the end of last year, one of them is to ensure that we look after the rights of Medibank employees. So we have got a series of objectives with the sale. One we want to ensure that the sale contributes to a competitive market, private health insurance market, we want to ensure that the service levels remain high, in particular in relation to rural and regional Australia. We want to ensure that the interests of employees are well looked after and so on. Subject to all of those objectives we want to achieve the best possible net return for taxpayers and that is the process that we are currently involved in.
REPORTER: So in this instance this is a sale of 100 per cent of Medibank? There is not a staggered sale as there was with Telstra?
MATHIAS CORMANN: Our objective is to proceed with a 100 per cent sale. But I hasten to add it is always subject to market conditions. So the Government as the owner of Medibank Private and as the seller obviously always reserves the right to make decisions along the way and if market conditions were to warrant that.
I think we have got some questions on the phone.
OPERATOR: Yes thank you. We have a question from Jessica Gardner with the Australian Financial Review. Please go ahead.
REPORTER: Good morning. Describing the benefit to Medibank Private policyholders of being able to receive a preferential allocation if they pre-register. This seems to only be a benefit if there’s an over subscription of the shares available to retail shareholders. So, do you expect a lot of interest from retail shareholders?
MATHIAS CORMANN: We think that there is going to be strong public interest in the Medibank Private share offer for sure. Obviously individual investors have to make their own decisions on whether or not to proceed with applying for shares once they’ve had the opportunity to consider the prospectus. The reason we are proceeding with the sale is because we believe that that is the right thing to do at this point in time. We have made a judgement that market conditions are right, which includes a judgement about the level of retail interest, which we do expect to be strong.
REPORTER: Okay. And just would you mind explaining or saying anything else from your statement that you expect Medibank Private will be able to perform better in private hands?
MATHIAS CORMANN: As I’ve indicated, I’m not sure that I’ve got anything else to add to this. Medibank Private is already performing very well as a business, but there are obviously some restrictions that come with being Government-owned and we believe that in private ownership Medibank Private will be able to perform even better. That is a truism. There is nothing remarkable about this, it is entirely unremarkable to make that observation and that is always one of the reasons why you would proceed with privatisation.
REPORTER: Minister is there a cap on foreign ownership?
MATHIAS CORMANN: There is a cap on individual investor ownership. So under the terms of the Medibank Private Sale Act, no individual investor can own more than 15 per cent. So the way the sale is going to proceed is we first proceed with the retail offer, the general public offer, which will take place exclusively here in Australia. Once that retail, general retail public offer has come to a close we’ll then proceed into the institutional phase and the restriction you are aware of under the Medibank Private Sale Act is that no individual investor is able to hold more than 15 per cent.
REPORTER: Is that 15?
MATHIAS CORMANN: One five, yes.
REPORTER: Have you had any more legal advice about the ownership of Medibank?
MATHIAS CORMANN: The ownership of Medibank Private is very clear. All of the shares in Medibank Private are owned by the Commonwealth. Medibank Private’s policyholders, Medibank Private customers purchase private health cover, they don’t purchase a share in Medibank Private. It’s really like any other business, if you’re a customer of a business, you purchase a product or a service of that business, you don’t become an owner of that business and that is really the same here.
REPORTER: On another matter, Minister ...
MATHIAS CORMANN: Before we get to other matters are there any further questions in relation to this by phone? If not, happy to go to the other matter.
REPORTER: Is the Government prepared to compromise at all on the six month waiting period for the dole and perhaps go with one month instead?
MATHIAS CORMANN: The Government is committed to implementing the measures that we delivered in the Budget. The Budget we delivered is the Budget that Australia needs if we are to protect our living standards and build opportunity and prosperity for the future. We are obviously conscious of the fact that we don’t have the numbers in the Senate as a Government and we do have to engage with others in order to get a majority in the Senate around various Budget measures and that is the process we’ve been involved in for some time and will continue to progress in an orderly and methodical fashion.
REPORTER: Speaking of the Budget, have we failed in our bid for this Budget considering we’re still talking about key measures in September?
MATHIAS CORMANN: Not at all. We inherited a Budget in very bad shape. When we came into Government in September 2013, we inherited a deteriorating Budget position, a weakening economy, rising unemployment. Since coming into Government just over a year ago, we’ve worked hard to turn that situation around. We’re very focussed on repairing the Budget. Repairing the Budget is not something that happens on one day and then it’s over. It’s a work in progress. It was always going to be a work in progress. Indeed, I’ve been known to say it’s a marathon not a sprint. We are very comfortable that we’re making progress when it comes to repairing the Budget and we will continue to keep at it until such time as we’ve got the Budget back in surplus. And even after that time, the economic reform task is never over, it’s an ever receding line as former Prime Minister Howard once said.
REPORTER: How confident is the Government that its financial advice reforms will go through now that there has been a vote of no confidence given by the FSC?
MATHIAS CORMANN: I completely reject the proposition that we’ve had a vote of no confidence from the FSC. That’s just false. The improvements that we are progressing to our Future of Financial Advice laws are improvements that we took to the last election. They are improvements that are very strongly supported by the FSC and I would encourage you to ask them on whether that is so. They are improvements that were supported by the Senate in the middle of July. We are progressing the legislation in the Senate. We would like to think it’s going to come up this week. Obviously, as with all Government reforms that improve the situation that we’ve found, we are hopeful that the Senate will endorse the Government’s reform proposals.
REPORTER: It’s quite a big (inaudible) if the biggest lobby group in the sector says that it needs a regulator?
MATHIAS CORMANN: I disagree with that characterisation. The thing is you’re mixing up different issues, to be fair. The Future of Financial Advice improvements that we have progressed get rid of unnecessary and costly red tape, which was pushing up the cost of advice, while keeping all of the consumer protection requirements that actually matter for consumers. Such as the requirement for advisers to act in the best interests of their clients and the ban on conflicted remuneration for financial advisers. We’re now having a conversation about how we can best lift professional, ethical and educational standards for advisers, for financial advisers further. A lot of work has been done by a range of organisations and by Government in the past. Indeed the current Government is actively working with all stakeholders on measures to further lift professional, ethical and educational standards. The question is how best to do it. Our view is that any future efforts to keep lifting professional, ethical and educational standards should be pursued in the most efficient way possible in order not to unduly push up the cost of advice. The FSC put a particular proposition on the table. I’m on the record as saying that I don’t agree with the proposition that we need another level of bureaucracy on top of the regulatory and bureaucratic structures that are already in place, including through ASIC. But this is unrelated, completely unrelated to the reforms that we have pursued and which were supported by all of the relevant stakeholders across the financial advice and services industry when it comes to the Future of Financial Advice legislation. But...interrupted.
REPORTER: Should taxpayers be alarmed that the Government is selling off the family jewels, but has no idea how much it wants for those family jewels? You’ve got no figure as to how much you want to make out of this?
MATHIAS CORMANN: You shouldn’t assume that like any other seller we don’t know what we would like to be able to achieve, just because we don’t think it’s appropriate to put that figure into the marketplace today. Our focus is on achieving the best possible net return for taxpayers and part of that is to conduct this sale in an orderly, methodical and a professional fashion and I think you’ll find that no seller of an asset in the circumstances would be volunteering the number that you’re after. So what we’re doing is, we’re conducting this process in the way that taxpayers would expect us to manage this process and that is professionally.
REPORTER: Minister, do you expect you will be required to attend a National Security Committee meeting?
MATHIAS CORMANN: I’m not going to speculate on these matters.
REPORTER: And, when do you expect Cabinet to sign off on air strikes?
MATHIAS CORMANN: I’m not going to speculate. Obviously there are matters that the Cabinet will have to consider once the Prime Minister is back from New York. That will happen in the ordinary course of events.
Are we finished in terms of Medibank? Thank you very much.