SUMMARY OF CONCLUSIONS
Telstra concluded that:
- under an issue of ordinary equity, the government would still retain
control of Telstra through its majority voting rights and ability to
appoint a majority of Board members;
- an issue of debt, or a hybrid security which would be deemed to be
debt by the financial markets or the tax law, although theoretically
a cheaper form of capital raising than equity, is not likely to achieve
the government's stated objectives from the partial privatisation;
- an issue of debt, or security deemed to be debt, in the order of A$8
to A$10 billion will severely constrain Telstra financially and will
be required to be refinanced by some means at the end of the term of
the initial security; and
- although both equity and debt markets are well established and understood
in Australia and overseas, the market for hybrid securities in Australia
is not well established or understood. Any such issue would require
an extensive marketing campaign and most probably changes to taxation
legislation to enable returns to be franked. [1]
The Treasury and the Office of Asset Sales also held similar views, with
the Office of Asset Sales concluding that ordinary shares are the only
instrument with the potential to meet all of the government's long term
objectives for the partial sale of Telstra. [2]
The BZW Australia stated in their submission that the partial sale of
Telstra should be by ordinary voting shares which will subject Telstra's
capital and operational efficiency to the full benefit of the established
capital market disciplines. [3]
The Bankers Trust Australia and Dr Rumble of the University of NSW proposed
that the partial sale of Telstra proceed with a mix of converting preference
and ordinary shares being offered to investors. They both concurred that
a sale of A$2 billion worth of converting preference shares would be very
achievable.
Dr Dwyer of Dwyer Partners supported an issue of low risk hybrid securities
such as redeemable and converting preference shares as these would be
a valuable addition to the portfolio mix of institutional investors facing
a shortage of debt and wanting a high franked yield. [4]
Dr Dwyer proposed an optional redemption participation preference share
which carried voting rights and where the dividends were tied to the dividends
payable to the ordinary shareholder. The holders of these types of shares
would be just as interested as an ordinary shareholder in the performance
of the company. A mixture of fixed dividend and variable dividend optional
redemption preference shares could both perform the market signalling
function desired by government while also appealing to a broader range
of investors.
Dr Dwyer contended that these types of shares would allow the government
to gain the efficiencies out of the management of Telstra and not actually
surrender the underlying assets. They would raise more for the asset in
relation to its intrinsic value than ordinary shares as these are normally
discounted by 10 to 20 percent, especially where floated as a permanent
minority shareholding. [5]
Davis Samuel Corporate Advisory Service supported the sale by an issue
of redeemable convertible preference shares which were explained in detail
previously. This form of issue would ensure that the government and Senator
Harradine's objectives would be achieved and would significantly benefit
the Australian taxpayer for future generations to come.
No one supported mandatory redeemable preference shares as they were
considered a form of debt under the tax law, would not be understood by
investors and are unlikely to raise the A$8 to A$10 billion capital necessary
for the government to achieve its stated objectives.
Footnotes
[1] Submission No. 1, Telstra, p. 8 and 10
[2] Submission No. 5, Office of Asset Sales,
p. 66
[3] Submission No. 7, BZW Australia, p. 75
[4] Submission No. 6, Dwyer Partners, p. 71
[5] Evidence, p. E 51 and 52