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Minister responds to criticism from Don Randall; explains decision to sell some Telstra shares and put the rest into the Future Fund.

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Friday 25 August 2006

Minister responds to criticism from Don Randall; explains decision to sell some Telstra shares and put the rest into the Future Fund


MARK COLVIN: The Federal Finance M inister Senator Nick Minchin joins me now. Senator Minchin, Don Randall was saying there that you're slightly pregnant. What do you say?  


NICK MINCHIN: (laughs) Good evening Mark. Well, he's saying that the problem for Telstra at the moment is that the Company is half pregnant with half the shares owned by the Government and the other half owned by 1.6 million ordinary Australian shareholders.  


And it's been our strong desire for a very long time to end that situation and we've now decided, as you know, to move to end that by this retail offer this year.  


And that gives effect to what has been long standing Government policy to ultimately exit the Company entirely. 


MARK COLVIN: But the slightly pregnant comment is about the fact that you haven't sold the lot. Why haven't you sold the lot? 


NICK MINCHIN: Well we've been prevented by the Labor Party for the... 


MARK COLVIN: No now...  


NICK MINCHIN: For the past eight years... 


MARK COLVIN: No this time, this time, this time... 


NICK MINCHIN: We finally have the legislative authority to sell the lot but of course it's always been a case that putting six billion shares on the market all at once or $24 billion worth was going to be a very big ask.  


Our assessment based on our professional advice of the level of demand at a reasonable price is that about $8 billion worth of shares can be sold and that's what we will go out and market.  


The residual will then be placed in the Future Fund and the Future Fund will over time sell down those shares. And the $8 billion may I say will be easily the biggest public offering in this Country since T2. That is a very big public offering. 


MARK COLVIN: And given how burnt many shareholders felt by T2, do you expect ordinary shareholders as opposed to institutional shareholders to come into this? 


NICK MINCHIN: Well obviously we're basing our decision to proceed with the retail offer on the best possible advice that we can obtain and that advice is after much research and analysis of the market that there is sufficient demand in the current market for that level of sale. So we are proceeding on very exhaustively analysed advice. We think there is the market for those shares. 


MARK COLVIN: But you have an opportunity now to speak to some of those people. How are you going to persuade them that they should trust you this time? 


NICK MINCHIN: Well they will rely on the, I'm not an investment advisor nor am I licensed to give investment advice Mark and I'm not going to go down that path.  


Obviously when the retail offer is made, investors and institutions will need to consult with their own investment advisors to determine whether they think the offering that we're proposing is an attractive one.  


We're proposing to do it by instalments, which as in T1 and T2 means that you can part pay for your shares but still receive full dividends. The attraction of Telstra over the years has been that it is a very good yield stock and even those investors in T2 have done well in an income sense from their shares in Telstra but that will be a matter for individual investors to decide whether it's an appropriate part of their portfolio. 


MARK COLVIN: There have been two big criticism of the idea of parking it in the Future Fund. We'll take them one at a time. The first is that's there's going to be this overhang so that the market will never know when the Future Funds going to release more of them and therefore that makes the price extremely sensitive. 


NICK MINCHIN: Well there is of course and overhang with Government holding all the shares itself. There's a 51 per cent overhang at the moment with a Government that wants to sell its shares but holding them at once.  


We are doing our best to minimise the number of shares that will go in the Future Fund. It's one of the reasons why rather than put the whole 51 per cent into the Future Fund we are offering a portion of our holding to the public and there be an escrow period on the Future Fund in which it won't be able to be sold.  


It will probably hold a market average weight in Telstra for some time but inevitably, given that the Senate in the form of the Labor Party prevented us selling all our shares in 1999, then there is going to be a partial overhang, but we're doing our best to minimise that. 


MARK COLVIN: And the other criticism would be that you're simply parking what could become a massive white elephant on the Future Fund which doesn't necessarily want it. 


NICK MINCHIN: Well, the Government as a result of the Labor Party in 1999 is in this position of being a holder of Telstra shares that it wishes to divest. 


And one mechanism that we can use to do that job is via the Future Fund and we think it much better that to the extent there is a residual holding it be held by professional investment managers in the form of the Future Fund rather than directly by the Government. 


MARK COLVIN: Finally, this represents the end of any opportunity to split the Company into two companies; one the infrastructure and one the operating company. Is that a matter for regret? 


NICK MINCHIN: Well we don't think so. I mean it was the Labor Party of course that created Telstra as a vertically integrated telecommunications company and required it to operate commercially and we sold the first parcel of shares on the basis of the structure Labor created.  


It is far too late to unscramble the egg and we believe there is much to be said in this country for having a strong vertically integrated telecommunications providing the core telecommunications services.  


That is the experience of other countries and we think Telstra as it is vertically integrated is the best outcome for Australia. 


MARK COLVIN: Thankyou very much for joining us. 


NICK MINCHIN: A pleasure Mark. 


MARK COLVIN: The Federal Finance Minister Nick Minchin.