Transcripts → 2014


Sky News Business with Helen Dalley

Senator the Hon Mathias Cormann
Minister for Finance


Date: Tuesday, 25 November 2014

Medibank Private Share Offer, Budget

HELEN DALLEY: Mathias Cormann, Finance Minister, congratulations. Are you pleased with the price and the listing?

MATHIAS CORMANN: So far so good. We are very pleased that the Australian market has supported the judgement that we made about the value of Medibank Private after the book build process. So yes it is very satisfying.

HELEN DALLEY: It was a very successful book build wasn’t it?

MATHIAS CORMANN: The book build was always designed to let the market determine the true value of Medibank Private and it has done that. Today shareholders have validated our judgment at the end of the book build.

HELEN DALLEY: Did you take bets on where the price would get to in the first few minutes?

MATHIAS CORMANN: No I don’t take bets.

HELEN DALLEY: So what did you think? Was it about $2.20, $2.22?

MATHIAS CORMANN: Pricing is always a delicate balance, you want to ensure that you get the best possible price you can get for taxpayers, but you also want to ensure that shareholders get fair value having purchased these shares in the Initial Public Offer process. From our point of view today, we got the balance pretty well right.

HELEN DALLEY: How much money will the Government actually walk away with?

MATHIAS CORMANN: Sale proceeds are $5.679 billion, which exceeds our initial expectations.

HELEN DALLEY: Very, very impressive amount of money. Will this now put a huge amount of pressure on Medibank, their management, to actually perform and live up to the expectations?

MATHIAS CORMANN: Medibank Private is a very good business, it is a well known brand in Australia, it looks after the health care needs of 3.8 million Australians. We believe that in private ownership Medibank Private will perform even better than in Government ownership, because they will have more flexibility in pursuing growth opportunities and managing their costs and we think it will be good news moving forward for Medibank Private policyholders.

HELEN DALLEY: So the good news won’t all be in the price today?

MATHIAS CORMANN: We believe it will be a win-win. It will be a win for Medibank Private policyholders, who will get an even better performing Medibank Private. It will be a win obviously for taxpayers who have been able to release the capital which was tied up in Medibank Private, but it will also be a win for the private health insurance market more generally, because Medibank Private will now be competing on a level playing field with all those other health funds, where in the past the Government had a conflict really as the regulator of the market and the largest market participant.

HELEN DALLEY: Now there is some momentum with this obviously, you have caught it at the right time in the market and it is paying off today by the looks of things, first few minutes of trade, will this entice you to sell more Government assets into private hands?

MATHIAS CORMANN: We will consider each opportunity on a case by case basis. In the last Budget we announced that we would undertake scoping studies in relation to the potential sale of four other assets. As soon as we receive those scoping studies we will consider those opportunities and make judgments in the same way as we have in relation to Medibank Private on whether or not it is desirable and whether market conditions are right for a potential sale.

HELEN DALLEY: So when might that be? When will those scoping studies be through, because obviously the momentum in the market is pretty strong at the moment. In six months time who knows?

MATHIAS CORMANN: We will go through an orderly and methodical process, we think that is important. We initiated the scoping study for Medibank Private in October last year. We then considered the results of that study in the lead up to the 2014-15 Budget. We will do the same in relation to those four scoping studies that are currently pending and consider those in the context of the next Budget.

HELEN DALLEY: I know you have a number of other pressing engagements, just a couple of issues. Do you feel you gave mum and dad shareholders a gift today?

MATHIAS CORMANN: No. We believe that we gave mum and dad shareholders fair value and opportunity to share in the future of Medibank Private. We think we got the balance pretty well right and the market today appears to have endorsed our judgments.

HELEN DALLEY: But they got the shares for $2, if they sell for $2.20, that’s 10 per cent.

MATHIAS CORMANN: When we started this process all of the commentators appeared to suggest that the Medibank Private Share Offer was good value at the lower end of the indicative price range...interrupted

HELEN DALLEY: It was $1.50 back then wasn’t it?

MATHIAS CORMANN: It was $1.55 and allegedly it was a bit pricey at the top end of the indicative range of $2. We always indicated that $2 would be the retail price cap. We wanted to provide certainty to mum and dad investors in relation to the maximum price they had to pay and we think that that was appropriate in the circumstances.

HELEN DALLEY: Mathias Cormann, at a time when it is very hard to get other Budget measures through the Senate, you had a setback last week with the FOFA reforms being disallowed by the Senate. Is this a way forward for you to get some money to repair the Budget?

MATHIAS CORMANN: This was a good opportunity to implement legislation that passed through the Senate in 2006. The Medibank Private sale was able to be managed under the provisions of the Medibank Private Sale Act 2006, so that certainly made it easier to manage this process the way we did.

HELEN DALLEY: And how are you going to spend it?

MATHIAS CORMANN: We will invest the proceeds in job creating, productivity enhancing infrastructure. That is a central part of our plan to build a stronger, more prosperous economy, creating more opportunity for everyone to get ahead.

HELEN DALLEY: Has anything actually been earmarked? Any particular projects?

MATHIAS CORMANN: We will be allocating the proceeds to appropriate economic infrastructure through our Asset Recycling initiative, consistent with the announcements that we have made in the Budget. All of these specific decisions will be announced in due course.

HELEN DALLEY: Finance Minister Mathias Cormann thanks so much for joining us on Sky News Business.