Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 20 October 2014
DAVID SPEERS: Well it is going to be one of the biggest share floats in Australia for years. One of the biggest in the world this year. Medibank Private is finally being sold by the Government. Today the prospectus was launched. The Government and Medibank saying that they expect an indicative price range of $1.55 to $2 a share. That puts the company's value at anywhere between $4.3 and $5.5 billion. The Finance Minister Mathias Cormann launched the prospectus. He is with me now, thank you for your time.
MATHIAS CORMANN: Good to be here.
DAVID SPEERS: So if the company is worth that much, $4.3 to $5.5 billion it does seem to be quite a spread there, doesn't it? I think a 25 per cent spread between the lowest and the highest. Why is it so variable?
MATHIAS CORMANN: Well it is an indicative range and an indicative range which is set based on the advice from the Joint Lead Managers. Obviously we have got expert advisers that investigate market conditions, investigate market demand and that is the advice that they have provided to us and that we have acted on.
DAVID SPEERS: The share price will be between $1.55 and $2 a share. You have said Australian residents won't pay anymore than $2. Why is that?
MATHIAS CORMANN: Well the final price for Medibank Private will be set by the market through the book build with institutional investors. What we are saying is that the final price could be within the range, it could be above the range or it could be below the range. If it is above the range, retail investor will not pay more than $2 a share under any circumstance. So if the final price is above the indicative price range that we have released today, then retail investors will effectively have a discount.
DAVID SPEERS: How much foreign investment, foreign ownership will there be?
MATHIAS CORMANN: Well we expect strong interest both domestically and from overseas. The sale is being conducted under the provisions of the Medibank Private Sale Act 2006, which provides a cap on ownership for any individual investor at 15 per cent. So no single investor can have more than 15 per cent ownership in Medibank Private as we go through this IPO process.
DAVID SPEERS: The number of people that have pre-registered for a prospectus, I think 750,000, have beat your expectations. Does that give you confidence then about the price you will get?
MATHIAS CORMANN: Well certainly we are very heartened by the level of interest that we got through the pre-registration process. It certainly exceeded our expectations and so it is one of the indicators of the level of demand in the market that we have relied on in making final judgments.
DAVID SPEERS: So there is a stronger appetite for Medibank shares that perhaps you originally thought?
MATHIAS CORMANN: Obviously we are now engaging in the process that will set the market value of Medibank Private. We will let that process take its course. We have provided to the market today an indicative price range, ranging from $1.55 to $2 as you have indicated. It will now be up to the market to respond and give us their verdict
DAVID SPEERS: Now Medibank said today that it is expecting a profit in the current financial year of $282 million. Are there any guarantees that once they are sold they won't have to push up premiums to achieve that sort of outcome?
MATHIAS CORMANN: Well the ownership of Medibank Private is completely irrelevant to the level of premiums charged. Right now Medibank Private is operating as a commercial business in a competitive private health insurance market and price setting, premium arrangements are regulated. Now after Medibank Private is sold, Medibank Private will still have to compete for customers with 33 other heath funds and they still will operate in an environment that is regulated when it comes to premium setting. So again, don't take my word for this. We have made this assertion for some time now and none other than the ABC Fact Check has assessed it and scrutinised it and they are hardly apologists for the Government but they said that our claim was on the money.
DAVID SPEERS: And are you committed to keeping those regulations around premium prices in place?
MATHIAS CORMANN: Certainly. We have said that this is one of the parts of the private health insurance market today. There is no proposal in front of Government. There is no proposal that we are considering to make any changes to the private health insurance premium setting arrangements as they currently exist.
DAVID SPEERS: But how does Medibank become a leaner, meaner private operator once it is free of Government hands if it can't do much with the premium from what you are indicating. What are they going to do?
MATHIAS CORMANN: The first thing that they will be able to do is operate as a truly independent commercial business, in that they will be able to more freely access capital markets in order to access growth opportunities into the future. Obviously in Government ownership, there is a little bit less flexibility on what a company like Medibank Private can do when it comes to growing its business further.
DAVID SPEERS: What about the board? Do you expect that to change?
MATHIAS CORMANN: That is going to be a matter for the new owners. We've put a very strong board in place, we've strengthened the board earlier this year in anticipation of this sale and obviously what happens to the Medibank Private Board post-sale will be a matter for the owners of Medibank Private at that point.
DAVID SPEERS: Can I turn just to a couple of other issues quickly? Defence pay, the Government has committed to 1.5 per cent pay rise for defence personnel over a year for three years. Labor says the Parliamentary Budget Office shows the Government was prepared to pay almost 4 per cent over four years.
MATHIAS CORMANN: Well I would never just take at face value what Labor claims. Labor also claimed that they would constrain Government spending growth to 2 per cent in real terms, when they were committing spending in excess of 3.7 per cent year on year beyond the forward estimates. So what we're doing, we're obviously working…interrupted
DAVID SPEERS: That's a Parliamentary Budget Office figure we're talking about.
MATHIAS CORMANN: It's a Labor Party claim. So from our point of view, we inherited a Budget in very bad shape. We have to make decisions to live within our means within that context. We are focused on repairing the Budget mess that we've inherited from our predecessors. We hold the Defence Forces in the highest of regards,…interrupted
DAVID SPEERS: But do you acknowledge that this is actually a cut in real terms?
MATHIAS CORMANN: I don't acknowledge that this is a cut.
DAVID SPEERS: Inflation is higher than 1.5 per cent.
MATHIAS CORMANN: You're making predictions on what inflation will be.
DAVID SPEERS: Isn't that what the Budget actually forecasts?
MATHIAS CORMANN: Look, we are being very transparent. We've inherited a Budget with $123 billion in projected deficits. We are setting out to repair the Budget mess that we have inherited from our predecessors. We are making judgments every day and some of these judgments are difficult judgments about what we can afford as we try to get the Budget back into surplus so we can stop borrowing from our children and grandchildren in order to fund recurrent expenditure today. That is what we are doing. We are making these judgments every day and in the lead up to the next election, people will be able to form their own judgments…interrupted
DAVID SPEERS: Is this an uncomfortable decision that you have had to make?
MATHIAS CORMANN: You know what, across the Budget we've had to make many difficult decisions. If it was easy to repair the Budget, even the Labor Party could have done it in the lead up to the last election. In the lead up to the last election, Labor left us with a Budget situation that was deteriorating at $3 billion a week. The deficit from May last year to the Pre-Election Economic and Fiscal Outlook was $33 billion worse than what was predicted.
DAVID SPEERS: Sure and we note the argument there but you have taken to essentially go from a trajectory of this for Defence personnel to this.
MATHIAS CORMANN: We are taking a consistent approach right across Government when it comes to making judgements about what is affordable in the fiscal environment that we are operating in, the fiscal environment that we have inherited from our predecessors and what we can afford in this context. That's just where we are.
DAVID SPEERS: Before I let you go, economic girlie men, you've had a bit of flak for using that phrase. Any regrets?
MATHIAS CORMANN: No. I used a bit of humour to make a very serious point. The very serious point is that Bill Shorten on your program promised to bring the Budget back to surplus more quickly than the Coalition at a time when he can't even get Labor to support Labor's own savings which they banked in their last Budget under Julia Gillard and Kevin Rudd. So when you've got Bill Shorten out there saying that he's going to bring the Budget back to surplus more quickly, not pointing to any of the cuts that he would have to make, not pointing to any of the tax increases he would have to make in order to get there more quickly, at a time when he is blocking most of our savings and not even backing in his own savings, I just thought it was a humorous way to describe what the situation was. You know what, despite all of the confected outrage from Labor and the Greens, nobody has actually contradicted the substantive point that I have made about Bill Shorten's approach when it comes to Budget repair, that he is not up to the task.
DAVID SPEERS: Finance Minister Mathias Cormann, we'll have to leave it there, thank you for joining us this afternoon.