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Australia’s finance minister is on Tuesday expected to recommend the government sell up to A$10bn ($7.6bn) worth of shares in Telstra, the dominant telecoms operator, to both retail and institutional investors, a move that would end one of the country’s longest corporate sagas.
Nick Minchin, who is in charge of the privatisation of Telstra, is expected to propose at Tuesday’s cabinet meeting that Canberra should sell less than half of its remaining 51.8 per cent stake in the company and place the remaining shares in a state pension fund.
If cabinet approves the move, it would mean that the government no longer owned and regulated the country’s dominant telecoms company, fulfilling a long-term ambition of John Howard, Australia’s prime minister.
Mr Minchin’s recommendation is expected to spark intense debate among his cabinet colleagues, many of whom believe that with Telstra’s share price languishing at a nine-year low, the government risks selling the asset too cheaply.
When the government first flagged its intention to privatise the company, its stake was worth more than A$30bn. Since then profits warnings, public disputes with regulators, a stock market investigation into alleged improper disclosure practices and allegations of cronyism by Sol Trujillo, the chief executive, have combined to produce one of the most turbulent periods in Telstra’s history.
The share price, meanwhile, has lost a quarter of its value over the past year.
The government could announce its decision on Telstra’s sale following the cabinet meeting, say people close to the situation.
Monday’s closing share price valued the government’s remaining stake at A$22bn. Mr Minchin is understood to be in favour of offloading between A$8bn and A$10bn worth of stock to investors. Goldman Sachs, UBS and ABN Amro Rothschild are advising the government on the issue.
One person familiar with the issue said: “Minchin will advise a chunky retail component to the offering. What cabinet makes of the details remains to be seen.”
The previous two tranches of Telstra stock were sold mostly to Australian “mum and dad” investors, who were attracted by its high and steady dividends.
Mr Minchin’s decision follows Monday’s announcement by Telstra that it would maintain its dividend payment of 28 cents for the coming year. Analysts had warned that the dividend level was in danger in being cut, jeopardising the sale, following a regulatory decision that will lower the amount it can charge rivals to access its network.
Any move to offload about 30 per cent of Telstra stock to the “Future Fund” will irritate Mr Trujillo, who on Monday urged the government to sell its entire stake to investors rather than create “an overhang”.
However, Mr Trujillo argued that “putting the shares out is a good thing’’ and added that institutional investors were showing renewed interest in the stock.