Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 20 October 2014
JANINE PERRETT: Right, as I said at the outset, today they released the details of the much anticipated Medibank Private float. They were revealed by Finance Minister Senator Mathias Cormann. Yes him. He joins me now from the Parliament House Studio in Canberra. Welcome to the show.
MATHIAS CORMANN: Good to be back.
JANINE PERRETT: Yes. I'm going to shock you by asking about, oh, I don't know, a $5 billion float. Let's just start on the pre-signings, the reaction you got, was it in line with expectations? Better?
MATHIAS CORMANN: It exceeded expectations. We obviously had some estimates from our advisors based on perfect conditions on what the likely take-up would be, the likely interest as part of the pre-registration process would be and we well and truly exceeded expectations with more than 750,000 Australians registering their interest in the Medibank Private Share Offer prospectus.
JANINE PERRETT: Now of course when I spoke to you last time, you were very careful in saying that the float would be subject to market conditions. Were you relieved that we saw a bit of the market volatility last week seems to have settled, or are you still on tender-hooks for the next month?
MATHIAS CORMANN: We are selling a significant asset. This will be the second biggest IPO in the world this year and of course it is the biggest for quite a while here in Australia. So obviously we have been working towards this for some time now. We have been taking advice all the way through and our advice is that the demand for Medibank Private shares is strong, that market conditions are right, despite some of the recent volatility. We're proceeding with the sale of a very significant strong business, a strong, well-recognised brand. If you look at the performance of health care and health insurance related stocks in recent times in any event, they've continued to perform comparatively strongly.
JANINE PERRETT: But you did say as I say last time that it was subject to market conditions. If we see that volatility again, do you still reserve the right to change the timing or is it now on track and that November 25 is the set time no matter what happens.
MATHIAS CORMANN: Well we continue to monitor market conditions and we continue to reserve the right to make judgments depending on what happens. I mean obviously we can't predict the unpredictable and so we do responsibly keep our options open. For example, right now from where we are now, we are intending to sell 100 per cent of Medibank Private. We believe that the demand is there to sell 100 per cent of Medibank Private at a fair price but at the right price in terms of the Government's objective of maximising net proceeds for tax payers. But if that were to change, we do reserve the right, right up until the end to make relevant adjustments to the sale structure, the offer structure.
JANINE PERRETT: Well now that the float is underway, I asked you last time about retail investors versus institutional. You will now be talking to the institutions. Given you've got that avalanche of private demand, is that going to be a problem satisfying that and satisfying the institutions or are you aiming this because of what it is at the mums and dads? How are you going to work those two competing interests?
MATHIAS CORMANN: Well retail investors, the mums and dads so-called, actually do need a good balance between retail and institutional investors because ultimately it is institutional investors that will, I guess, be more effective in making sure that Medibank Private, the Medibank Private Board and that Medibank Private as a business continues to perform to the best of its ability. So it is going to be a matter of balance and we will make these judgments once we know exactly what level of retail interest there is, once we know exactly what level of institutional interest there is and at what price, and we will make sure that the final decisions that we make in terms of the structure and the balance between retail and institutional investors ensures that Medibank Private has got the best possible opportunities to go from strength-to-strength into the future.
JANINE PERRETT: Of course the institutions play hard-ball. As you said the Government's role is to maximise what you get. You want to highest possible price; the institutions will want what they want. Do you worry about that thing of satisfying demands? That people might be unhappy at the end when it's a Government selling?
MATHIAS CORMANN: There is always a creative tension between anyone selling an asset and somebody looking at buying the asset. Ultimately that is why we are going through this structured process, through this structured share-offer process where market forces will be able to play out and ultimately market forces will help us determine through in particular the book build process involving institutional investors what the right price, what the right final price is for Medibank Private shares as part of the sale.
JANINE PERRETT: Now usually in these floats we see a big advertising campaign. Given you've already had the pre-registration, you know there's a lot of interest, does that mean there won't be a very expensive advertising campaign? Or are we going to be inundated, will there still be a big informational advertising campaign in the coming weeks?
MATHIAS CORMANN: Well there will be an advertising campaign. There will be an advertising campaign to make sure that people across Australia are aware of the opportunity to share in the future of Medibank Private and of course look, our focus is entirely on maximising net proceeds for taxpayers, along with a series of other objectives for the sale. In that context advertising the offer is an important part of that. In the end what matters is gross price minus the various costs that are incurred as part of the sale including advertising costs and that is the indicator that we are focussed on.
JANINE PERRETT: Do you know what the price of the advertising campaign is going to be?
MATHIAS CORMANN: Well obviously these are matters that will be revealed publicly in due course. But right now what we have indicated is that we're looking at achieving the best possible net return and the advertising spent and spent generally around managing the sales process is in line with similar such privatisations that have occurred in the past.
JANINE PERRETT: Are you going to have a Jennifer Hawkins type star or celebrity to sell it like we saw with Coles? Or is it going to be a very white bread type sale?
MATHIAS CORMANN: No it'll be a very straight forward campaign. We launched it this morning as part of the release of the prospectus. It is essentially a continuation of the advertising that you would have seen in the context to the pre-registration process. It's the same feel, the same branding to it and it is very straight forward explaining about Medibank Private, the business they are and essentially making people aware of the opportunity to share in the future of Medibank Private.
JANINE PERRETT: The one criticism that did come out quickly today in the prospectus was the tripling of the CEO's pay, can you justify that for us please?
MATHIAS CORMANN: Obviously in private hands, Medibank Private, if it is sold within the indicative price range which we have released today, will be a Top 100 ASX listed company. It will have a market capitalisation of anywhere between about $4.3 and $5.5 billion and so the remuneration arrangements for the Managing Director are in line with general market practice. A significant part of the remuneration arrangements of course is linked to incentive payments to drive performance and obviously it is important for shareholders moving forward that the Managing Director of Medibank Private performs and reaches and meets all of the performance targets that are set by the Board.
JANINE PERRETT: So was he underperforming at $1.2 million?
MATHIAS CORMANN: Once you are running a publicly listed company with all of the additional opportunities that come with that in terms of driving future growth and exploring future growth opportunities and the like, there are a set of remuneration arrangements that come with that. A significant part of the remuneration arrangements are linked to meeting certain performance targets and that is the usual standard practice with companies at that level.
JANINE PERRETT: The only other main criticism I saw at the time you launched the pre-registration was this question of where the funds would go. Some have argued that it should go to pay down debt if we have a debt crisis, others have said why don't we use the money like we did with the Telstra proceeds into some kind of Sovereign Wealth Fund where we could get the proceeds because you were getting proceeds from Medibank Private and in a few years the proceeds from this will not work out the same. So wouldn't it be better to have them in perpetuity?
MATHIAS CORMANN: There are a couple of different points here. Firstly we have been saying for some months now that the proceeds from the sale of Medibank Private would be invested in productivity enhancing infrastructure and that is through our Asset Recycling Initiative. That was an announcement that was formally made in the Budget, but we flagged it sometime before that. Secondly, in terms of the return for taxpayers from Medibank Private, Medibank Private will continue to operate as a for profit business, will continue to pay company tax and of course Medibank Private, growing more strongly moving forward will obviously, if Medibank Private is more successful, will pay more company tax. I might just say here that the level of special dividends that were taken out of Medibank Private by the previous Government was never going to be sustainable into the future. At various times my opposite number, Tony Burke, suggested that the Government could have been withdrawing up to $500 million a year in dividends out of Medibank Private at a time when profit forecasts are well below that. That was never going to be a sustainable way forward. That was the way that Labor pursued their fiscal management but it is not the way that we would have pursued it in any event.
JANINE PERRETT: Now we are on to Labor and we will get to the Budget. There is constantly talk that you in negotiations with the PUP Senators, with the crossbench Senators. We still hear nothing on the Budget. How confident are you of getting parts of the Budget, the whole Budget? Where are we at the moment with the negotiations?
MATHIAS CORMANN: Well firstly I have been spending a lot of time since 1 July talking to crossbench Senators. That is because the new Senate is a much better Senate than the Senate that we had until 30 June when Labor and the Greens had complete control and just about blocked everything.
JANINE PERRETT: Well you're not getting much through yet though.
MATHIAS CORMANN: That is actually wrong with all due respect Janine. Since the new Senate came in, if I may answer that question, we got rid of the Carbon Tax, we got rid of the mining tax and about $50 billion in unfunded promises that Labor…interrupted.
JANINE PERRETT: But I'm asking you about the Budget, how much of the Budget are you confident on getting through?
MATHIAS CORMANN: Janine, again with all due respect, $50 billion in savings over the next decade was part of the Budget and that was part of the Budget where we said we would get rid of the mining tax and the unfunded promises that Labor attached to it and we have done that. Most of the Budget is actually through the Parliament now; most of our Budget is through the Parliament. The measures that we are still talking about relate to, and I can list them for you; in the main, the Fuel Excise Indexation, our proposal to ensure that the real value of the excise of the fuel doesn't continue to fall moving forward, it has already fallen from 42 per cent to 25 per cent since indexation was removed in 2001. We are still talking about the proposal to put a price signal in place to access certain medical services and we are still talking about higher education reforms…interrupted
JANINE PERRETT: Well they are three key parts of the Budget. How confident are you of getting them through and if you don't or this drags on, what is that doing to your Budget bottom line?
MATHIAS CORMANN: We are totally focused on getting all of our Budget measures through. The important point here is, and I have made this several times, I think I've made it on your program as well. The co-payment measure for example doesn't come into effect until 1 July 2015. The higher education reforms don't come into effect until early 2016. So it is actually not doing anything to our budget bottom line right now. We have time to talk through these structural reforms. Any Budget is a 4 year plan and there are things that we are doing immediately, there are things that we are doing in a staggered fashion over the forward estimates and we are working our way through all of the measures in a sequential and prioritised way and that is an entirely rational way to go about managing the Budget.
JANINE PERRETT: So you seem quite unruffled by these negotiations.
MATHIAS CORMANN: I am very pleased that the crossbenchers, including and in particular the Palmer United Party, but also Family First, the Liberal Democrats and others, unlike Bill Shorten and the Labor Party, unlike the Greens under the leadership of Christine Milne are all engaging constructively with the Government in an effort to find common ground and I am very confident that we will be able to achieve outcomes that are going to be in the national interest and help us repair the Budget moving forward.
JANINE PERRETT: So given that you are your usual calm self, despite all this, can we assume then that you were correct when you said it was merely a "sense of humour" that got the "girly man" comment and not a sense of frustration or losing your cool?
MATHIAS CORMANN: I was using humour and playing on my accent obviously to make a very serious point. The question that was put to me was whether I accepted that Bill Shorten and the Labor Party would be able to bring the Budget back into surplus more quickly than the Coalition. Bill Shorten was a senior member of the Labor Government that created the mess in the first place. He is a leader of a party that is opposing most of our savings measures. He is the leader of a party, I mean he can't even get the Labor party to support the savings that Labor themselves initiated and banked in their last Budget and he is not telling us how he is going to get into surplus more quickly. Where is he going to cut more deeply, where is he going to increase taxes given that he is starting from behind? I got a couple of days of good coverage on what is a very important point to make and what is a very important point for people across Australia to be aware of, so I'm pretty relaxed Janine.
JANINE PERRETT: So you're not going to apologise? It's not like "poor people don't drive cars" or things like that. You think in the scheme of things, more a joke than a faux pas?
MATHIAS CORMANN: I was using humour to make a serious point and I think everybody knows where the commentary came from. Everybody knows who has used that terminology before. I think that over the years people have made jokes at my expense on many occasions when it comes to my accent. I have always quite frankly gone along with it quite happily. On this occasion I thought I would seize on that opportunity to make a serious point. I'm not surprised there was a level of excitement. Let me just make this point though Janine, despite all the confected outrage from Labor and the Greens, nobody has actually disagreed with the substantive point that I have made about the fact that Bill Shorten does not have what it takes to repair the Budget mess that Labor left behind.
JANINE PERRETT: I could call him a "big girls blouse" that is an Australian term? That's not an Arnold term. Is that still bad?
MATHIAS CORMANN: I don't think I am going to go there Janine.
JANINE PERRETT: Ok, could you give us one just to show that your sense of humour is still there? Do your usual sign off that we always got you to say for years and you have played along.
MATHIAS CORMANN: It is humour right, it is humour and I will be back.
JANINE PERRETT: Say it again, come on, just to remind us.
MATHIAS CORMANN: You know that I'll be back, Janine.
JANINE PERRETT: Thank you very much Senator Cormann. Always a pleasure to talk to you. And keep your sense of humour.