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Transcript - ABC News - The Business with Ticky Fullerton

Senator the Hon Mathias Cormann
Minister for Finance


Date: Monday, 20 October 2014

Medibank Private Share Offer

TICKY FULLERTON: I'm joined now from Canberra by Finance Minister Mathias Cormann. Minister, welcome to the program.

MATHIAS CORMANN: Good to be here.

TICKY FULLERTON: Now, pricing these privatisations are notoriously tricky, I know, Minister. But you presumably want sort of a goldilocks price, you don't want to underprice it. I was surprised at how wide the range was.

MATHIAS CORMANN: We have been taking advice from the experts in relation to setting that indicative price range. An important point here to make in the context of your story just now, it is just that, an indicative price range. Of course, ultimately, the final price will be set by a process through the book build with institutional investors where market forces will set the foundations for what the final price will be. The final price could be above the indicative range, it could be within the range or it could be below the range. The significance of what we have announced today is really that there is certainty for retail investors and that under no circumstances will they be expected to pay more than the $2.

TICKY FULLERTON: We have got a fair time of course in that pricing process. In the meantime, we have had warnings from people like the RBA's Ralph Doubell talking about possible violent downturns in the equity markets. If things went really bad, would you consider pulling the deal or just retaining a stake, I think as is suggested in the prospectus?

MATHIAS CORMANN: Where we are here today, we are proceeding with the sale of 100 per cent of the Government's stake in Medibank Private. But of course, if the market was to unexpectedly deteriorate moving forward, if the market conditions were to unexpectedly deteriorate between now and the expected public listing of Medibank Private, the sale is structured such that we do maintain the flexibility to adjust the sale. Indeed, we might decide not to proceed with 100 per cent of the sale. But that is not our current intention. All of the advice that we have is that there is strong retail interest. There is strong institutional interest. Medibank Private is a strong business with a well known brand. It provides health cover to more than 3.8 million Australians and we are very confident from where we are here right now on the basis of what have we know today that this is the right time to proceed.

TICKY FULLERTON: Pricing of course will be driven as much as anything by future growth and ability to put the lid on costs, and improve claims management, beyond 2015. I think George Savvides was quite confident about next year, but beyond that, I guess that's what you're going to have to convince institutional investors on your roadshow?

MATHIAS CORMANN: I guess that that is core business for a private health insurance fund. There are 34 private health funds in the Australian private health insurance market that all face the challenge of you know trying to keep costs down while delivering the best possible value to their customers, and you know, I am very confident from where I am here. Medibank Private is a strongly performing business today. In private ownership we believe that they can do even better. In terms of pursuing growth opportunities into the future obviously being able to operate as a truly independent commercial business, being able to access capital markets and the like will offer new opportunities to Medibank Private in private ownership to pursue those opportunities moving forward.

TICKY FULLERTON: What about these price comparison web sites? It could be quite a different playing field?

MATHIAS CORMANN: I heard that commentary in your story before. I have got to say I was a senior executive in a private health fund in Western Australia about 10 years ago and over a period beyond that and we were dealing with these comparison web sites then. I don't agree with the proposition that somehow this is a new phenomenon. This is a phenomenon that has been actually in place in private health insurance in Australia for some time. Private health insurance in Australia is a well functioning, very competitive, well regulated market. It is a very mature market. Of course, in the context of the ageing of the population, where access, timely and affordable access to health care will become more and more important, we believe that there will be opportunities for Medibank as currently the largest market participant to pursue opportunities into the future.

TICKY FULLERTON: I suppose one area Medibank might be vulnerable is again with the markets. 18 per cent of its $2.2 billion portfolio is in growth assets. If the market turns south won't that affect the pricing quite considerably?

MATHIAS CORMANN: All of these matters are addressed in the prospectus. Any business of the size of Medibank, there are various risks at any one point in time that it has to manage. Medibank Private has got the appropriate risk management frameworks in place and the appropriate disclosures in relation to those sorts of risks are made in the prospectus. The general point I would make here is that any Australian who is considering investing in Medibank Private should of course consider all of the information that is in the prospectus before making a judgment on whether or not to proceed with an investment.

TICKY FULLERTON: And Mathias Cormann, how much of the funds that you raise would be put towards the asset recycling program? And to what extent might some of the infrastructure that Barnaby Joyce would like in his Green Paper be able to take advantage of that?

MATHIAS CORMANN: We have said that we would reinvest all of the proceeds from the sale of Medibank Private in job creating productivity enhancing infrastructure through our Asset Recycling Initiative. The Asset Recycling Initiative is a specific initiative that was announced as part of the Budget. It seeks to also leverage further investment by State and Territory Governments, encouraging them to proceed with the sale of assets that could perform even better in private hands and might no longer be appropriate for Government ownership. This is really part of a very specific part of our of our plan to build a stronger more prosperous economy where everyone can get ahead.

TICKY FULLERTON: And Minister, finally, putting the girlie man talk aside, I see the Parliamentary Budget Officer Phil Bowen has warned that the surplus would inevitably shrink if the $18 billion I think in Budget savings measures were not passed by as much as 1 per cent of GDP. Do you agree?

MATHIAS CORMANN: It is very important that the Parliament passes the Budget the Government has put forward. We have put forward the necessary plan in order to ensure we can protect our living standards and build opportunity and prosperity for the future.

TICKY FULLERTON: Do you think it could be that bad, though?

MATHIAS CORMANN: We of course deliver our own Budgets and our own Budget updates and the Government's next Budget update is the Mid-Year Economic and Fiscal Outlook which will be delivered in December.

TICKY FULLERTON: We will look at that very closely in December.


TICKY FULLERTON: Minister thank you very much for joining us.

MATHIAS CORMANN: Always good to be here.