Bob McMahon

I thank Mr. Gillies for his prompt reply to my questions and I wish to assure the readers of this article that my letter to Mr Gillies was an open letter. The explanations supplied by the RBF raise many further questions, but before I make a public response I invite the readers to contribute to this debate. Your questions and points of view would be much appreciated, either in these columns or privately via email: bob@orielstudio.com.au

The debate over the sale of State assets has a long way to run given that the government has offered the Southern Cemetery Trust for sale and there are strong rumours that other assets, such as water, will also be put on the market. I know the alarm bells are ringing around the state because it is assumed, correctly or incorrectly, that the push is on by the Lennon government to raise funds for pulp mill infrastructure or for the pulp mill itself. RBF members, is your money paying for pulp mill infrastructure?
The sale of the Hobart Airport to a consortium of Macquarie Group and the State superannuation scheme, the Retirement Benefits Fund (RBF), occasioned a little interest from the mainstream media on the day of the announcement and none since. A couple of weeks before the sale Treasurer Aird was reported as having said he hoped to get $40 million for the sale. The eventual enormous sale price of $350 million was touted in the media as a “windfall” for the State Labor Government, but the only attempt I have seen to explain the disparity in price was a throwaway line in the print media alluding to strong bidding from other contenders. Who were these contenders and how strong must the bidding have been to push the price more than four times higher than the market value estimates in the print media, following the sale, of somewhere in the vicinity of $80-85 million?

The RBF, using Tasmanian superannuants’ money, picked up half the tab of $175 million. Members of the RBF started wondering what the hell was going on. As a member of the RBF, and on behalf of other members who had communicated their concerns to me, I wrote to the RBF seeking some answers. What follows are the questions I asked and the answers supplied on behalf of Simon Gillies, Chief Executive Officer.

1. Would you please provide me with the names of the directors of RBF and indicate the names of those directors who were appointed by the Tasmanian Government?

Referral to the 2007 Member report provides detail of each Board member and how they were appointed. Damian Egan: President of the RBF Board (non-voting) Nominee of the Minister with the agreement of the Tasmanian Trades and Labor Council. Andrea Schiwy: Deputy President of the RBF Board, Nominee of the Minister. John Wilcox: Nominee of the Minister. Kim Besharati: Nominee of the Minister. Lindsay Jones: Nominee of the Tasmanian Trades and Labor Council. Neroli Ellis: Elected by the members of the RBF Contributory Scheme. Kim Backhouse: Elected by members of the Tasmanian Accumulation Scheme. Wendy Sawford: Substitute Board member – currently a substitute for Andrea Schiwy – Ms Sawford is Director of the Revenue, Gaming and Licensing Division within the Dep’t of Treasury and Finance. Simon Gillies: Chief Executive Officer.

2. Would you please provide me with the minutes of the meetings in which the purchase of the Hobart Airport was discussed? The identity of the proposer of the motion to purchase, the seconder and the names and nature of the votes of all the directors is also requested at this time.

It is not possible to release to you the Board minutes concerning the Board’s investment in the Tasmanian Gateway Consortium as the decisions taken are commercial in confidence.

3. If the minutes do not include the substance of all discussion with Macquarie Capital and the Tasmanian State Government re the airport purchase, would you please provide me with transcripts/minutes of those discussions?

It is not possible to release to you the substance of any discussions with Macquarie Capital and the Tasmanian State Government as those discussions are commercial in confidence.

4. Would you please clarify the status of the ownership of the Hobart Airport in regard to the portfolio of investments held by RBF on behalf of its members? What I am getting at is do the members of the RBF share in the profits/losses that result from the joint operation of the airport with Macquarie Capital?

The Board’s investment in the Hobart Airport is via shares in an investment vehicle established by the Tasmanian Gateway Consortium for the specific purpose of acquiring Hobart Airport. This investment has been allocated to the RBF Infrastructure asset class. Therefore, RBF members who have invested in any of the Member Investment Choice (MIC) options which include an exposure to Property and Alternative Investments will receive returns generated from the Board’s investment in the Tasmanian Gateway Consortium. The RBF Contributory Scheme also has an exposure to the investment in the Tasmanian Gateway Consortium.

5. What proportion of the Hobart Airport does the RBF own and how much did the RBF pay for that proportion? In what proportion does RBF share in the profits/losses from the operation of the Hobart Airport?

The Board owns 49.9% of the shares in the Tasmanian Gateway Consortium with the balance owned by the Macquarie Group and associated interests. This investment represents approximately 9% of the RBF Property and Alternative Investments asset class and less than 3% of total funds under management. The investment meets the objectives of the Board’s investment strategy as it compares favourably on a risk adjusted return basis.

6. Given the Hobart Airport’s low revenue and profit levels how does this justify the high purchase price?

As trustees of the Retirement Benefits Fund, the Board has an obligation to ensure that the Board’s functions and powers are performed and exercised in the best interests of the beneficiaries and, in respect of the RBF Contributory Scheme, having regard to the interests of the State. The Board has made this investment after due diligence processes that utilised expert assessment. The Macquarie Group is considered to be the world’s leading value-adding airport infrastructure manager and investor. The Board has been working alongside Macquarie Group for many months conducting detailed due diligence on valuations of similar global assets. The Board has confidence in its bid strategy as a co-investor and believes that the asset has strong long term portfolio returns and that its sound cash flow positioning compliments (sic) other high quality assets in the Board’s portfolio.

7. It has been reported in the press that the reason why $350 million was paid for the Hobart Airport is because of strong bidding by other contenders for the purchase. Would you please substantiate this report?

The Board does not speculate on media reports. Globally, airport assets attract strong investor interest and the recent sale of Hobart Airport represented one of the rare opportunities in recent years where 100% of the asset has been offered to the market.

8. What similar purchases, i.e. of properties and businesses which the RBF owns and operates wholly or in partnership, have been made by the RBF in the last four (4) years?

The Board has approximately $50 million invested directly in Tasmanian real estate of which approximately $10 million has been invested in the last four years. The Board is currently investigating redevelopment options on the Myer Hobart site which was devastated by fire in September 2007. Whilst the Board’s exposure to Hobart Airport is its first direct investment in infrastructure, the Board has been conducting research in this area for over eighteen months.

In summary, the Board has every confidence in its new investment in Hobart Airport. The Airport has low volatility with stable cash flows and growth potential. As the only major airport in southern Tasmania, there is little competition within the market to threaten or reduce current service levels.
Simon Gillies Chief Executive Officer

I thank Mr. Gillies for his prompt reply to my questions and I wish to assure the readers of this article that my letter to Mr Gillies was an open letter. The explanations supplied by the RBF raise many further questions, but before I make a public response I invite the readers to contribute to this debate. Your questions and points of view would be much appreciated, either in these columns or privately via email: bob@orielstudio.com.au

The debate over the sale of State assets has a long way to run given that the government has offered the Southern Cemetery Trust for sale and there are strong rumours that other assets, such as water, will also be put on the market. I know the alarm bells are ringing around the state because it is assumed, correctly or incorrectly, that the push is on by the Lennon government to raise funds for pulp mill infrastructure or for the pulp mill itself. RBF members, is your money paying for pulp mill infrastructure?

On a different tack the government is also considering the sale of certain Department of Housing assets in order to pay off some of the more than $200 million housing debt owed to the Commonwealth.

Bob McMahon
www.abetteraustralia.com