Ports: what role for mixed ownership?
The great majority of the international published and peer reviewed empirical literature finds that a degree of private ownership tends to improve firms’ performance on average and over time. Key reasons are that the incentives and ability to monitor 100% government-owned firms are relatively weak as there is no public share price and no threat of takeover. Another reason is that governments are more likely to influence the decision-making of firms they own and control so that the firm is less able to focus on its commercial performance.
Our latest report tests this theory in the context of New Zealand’s ports. Of the eleven major ports in New Zealand, all are at least 50% council-owned, with seven of the ports 100% council owned and four having mixed ownership. Analysing the performance of the ports over the last eight years, our report finds:
- the average RoA of the mixed-ownership ports was 9% p.a., almost fifty per cent higher than the 100% local government-owned ports’ average return of 6.4% p.a.;
- the average RoA and RoE of the mixed-ownership ports exceeded that of the 100% local government-owned ports every year over the past eight years; while
- the 100% local government-owned ports on average had lower gearing and greater liquidity.
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The report also reviews case studies of three ports –Auckland, Lyttelton and Napier– that have either delisted or listed their shares on the NZX over the last twenty years. We find:
- Ports of Auckland showed a clear deterioration in profitability, dividend yield, solvency and liquidity following its delisting in July 2005. Excluding the revaluation-affected 2005 results, Ports of Auckland’s average RoA declined from 16.7% in the four years prior to its delisting to 6.2% in the four years after delisting.
- Lyttelton Port’s profitability decreased following delisting in November 2014, although its gearing decreased, both its current ratio and dividend yield increased on average following delisting. It is important to note however that Lyttelton Port’s results were affected by the Christchurch earthquakes.
- Contrary to the general findings of this report, Napier Port’s profitability decreased slightly following its listing on the NZX in August 2019. However, this result may reflect the temporary impacts of COVID-19 which adversely affected the port’s earnings. The company has been able to use the funds raised in the IPO to pay down debt, decreasing its gearing ratio.