If your best possible use of any raised funds is a RaboBank term deposit at 6%, and if the net earnings flows are comparably risky, then if somebody's willing to pay you at least $1667 for the asset, you're better off selling it. Otherwise, you're better off keeping it. If somebody offered you $1000 for it, you'd get $60 per year in interest. That's less than $100 per year. If somebody offered you $2000 for it, you'd get $120 per year in interest. That's more than $100 per year. Whether you should sell off the asset depends on how much somebody else is willing to pay for it.
So, what's somebody else willing to pay for your asset? That depends on what they could do with it. If others reckon they could earn more from your asset than you are, they could bid the price up to a point above $1667. If they think they could earn less, they'd offer less. So whether you should consider selling the asset really depends on whether somebody else could make more money from it than you can. If they could, they'll pay you for the privilege, and you'll both be better off.
This has, perhaps, been overly pedantic. But when folks' main objections to asset sales are losing the flow of dividends, pedantry seems necessary. Here's Christchurch Mayor Bob Parker.
The strategy does not propose the sale of any city-owned assets, including our shares in companies such as Port of Lyttelton, Orion or Christchurch International Airport Limited. This Council has recognised the importance of retaining these assets, which provide valuable dividends each year and offer an alternative revenue stream to rates alone.
As part of our usual business practice, the Council keeps an eye on the value of our assets and the returns they yield. At this stage, when you look at the annual revenue we receive from these companies, it just does not make financial sense to consider selling them for a short-term profit.Where an asset is more efficiently owned by the public sector, then the one-off return from selling the asset will be lower than the value of the dividend stream. But how many assets really fall into that kind of category? Christchurch Council used to think private management of Lyttelton Port was a good idea; they wanted to bring in Hutchison Port Holdings as strong minority owner and manager of the Port. It wound up being blocked, if I remember correctly, when Lyttelton's main competitor, Port Otago, acquired a blocking interest to prevent the sale; they seemed to be worried that Lyttelton would be more competitive under private management.
Before the earthquake, with a different Mayor, Christchurch thought it a really good idea to sell off just shy of a controlling interest in the Port to a foreign specialist in ports. They saw opportunities for better management with specialist interested assistance. Now, after the earthquake, when Council's a bit more desperate for money, Mayor Bob Parker thinks it short-term thinking to sell off even part of Lyttelton Port? Remarkable.
If the quake has made it more expensive for Council to raise debt financing, then surely that also makes partial divestiture of some current Council assets more attractive. Council owns 75% of the airport. Is there something magical about 75% that made it the right ownership fraction both before the earthquake and afterwards? Mightn't it make sense to trade some of Council's ownership of the Airport, Port, and Red Bus for Council ownership of improved roading, sewerage, and water infrastructure? Or to help build a park and bike paths along the Avon that don't provide a financial return but improve quality of life? Or maybe to help them rebuild the torched kid's play structure in South Brighton Park that's been sitting behind a fence since January and otherwise ignored by Council but asked about by my children every single time we go to use the swings there?* Surely there are some current quality of life issues that are worth more than having an extra 5% of the airport. Am I a heartless neoliberal because I think it just might make sense on equity grounds to fund partial temporary rates abatement in the more earthquake affected parts of Aranui and Bromley by selling off a few percent of Red Bus and canning the plans for an expensive new stadium and convention centre?
Yes, selling Council-owned assets gives us money now and less money later if we spend it on current consumption or lower rates. That's a trade-off worth making after an earthquake so long as the selling price for the assets is reasonable.
* Update: The Christchurch Mail, in my mailbox this evening, reports Council's planning on starting work on it; it might be ready for next summer.
