NEW YORK-Legislation to privatize the remaining two-thirds of Telstra Corp. Ltd. in what would be the world’s largest single stock sale could be introduced in the Australian Parliament as early as March 23, said Prime Minister John Howard.
Although financial institutions praised potential benefits of the sale, prospects for approval of Howard’s plan remain cloudy, given opposition by legislators from several political parties. The sale also only would go forward if Howard’s Coalition government wins the next general election.
One-third of the wireless and wireline telecommunications conglomerate was sold in an initial public offering in November for $9.38 billion.
“The broader economic rationale behind it is that, having privatized one-third of Telstra, it is commercially unwise for the government to retain the other two-thirds. The company will run better in full private ownership,” Howard said.
The government will use most of the proceeds to retire federal debt, but also plans to apply some of the funds to major infrastructure projects, which will be announced before the next election, said Sen. Richard Alston, who is communications minister. If the legislation is introduced during the three-week session that begins March 23, the Senate then could consider the measure during its budget session, which begins May 12. If the plan gains Senate approval, a general election in Australia could be held anytime after July. The actual sale, if approved, isn’t likely to occur until late this year.
“The overwhelming bulk of these proceeds of the sale will be applied to debt reduction, but we reserve the right to use the balance for a social bonus,” Alston said.
“[There will be] no doubt what `overwhelming’ means in due course. It will be abundantly clear as we go into the election what we intend to do with those proceeds … that aren’t dedicated to debt retirement.”
The anticipated $27.02 billion to $30.4 billion in sale proceeds would allow Australia to reduce its outstanding federal debt by 40 percent, Prime Minister Howard said.
“If they don’t spend too much of it, it will clearly be putting Australia’s fiscal settings and public-sector debt levels without peer in the world,” said Stephen Koukoulas, chief economist for Citibank, Sydney.
The federal Treasury also would gain from corporate taxes paid by a fully privatized Telstra and from income and capital gains taxes paid by Telstra shareholders.
Maurice Newman, president of the Australian Stock Exchange, said the exchange would benefit from the increased liquidity resulting from trading more Telstra shares. This, in turn, would help attract further foreign investment to Australia, he said.
Several securities analysts also said retirement of a huge chunk of Australia’s federal debt would diminish dramatically the country’s government debt market while also opening an opportunity for a burgeoning corporate debt market.
The plan proposed by Howard calls for Telstra to remain majority owned by Australian interests. No more than 35 percent of the company would be available to foreign investors, and no foreign company would be allowed to own more than 5 percent. Telstra’s chairman and the majority of its board of directors would continue to be Australian.
“Does anyone in Australia think for one minute, does anyone want to have a $1,000 bet with me, that in 20 years’ time AT&T (Corp.) or someone like them won’t be the majority shareholder?” questioned Minister of Parliament Bob Katter of Queensland.
“I think definitely that the government needs to hold on to a 51-percent stake in the operation.”
The legislative plan for full privatization of Telstra also would require the carrier to provide universal “basic community (telephone) services,” Howard said.
Sen. Brian Harradine of Tasmania, whose vote is considered crucial to passage of the privatization legislation, said he believes monopolies on essential services should remain in government hands. He has expressed concern about the potential for a negative impact on rural Australians should all of Telstra be privatized.
Meg Lees, leader of the Democrats political party, said she also opposes a further sell-off of Telstra shares. She called on the federal government to submit the proposal to a citizens’ referendum.
Additionally, Kim Beazley, Labor Party leader, also has committed to blocking any further sell-off of Australia’s largest company.
