Increasing Government concern about the sale of Qantas.
In an article in today’s The Age following mounting concerns, including in Government about private equity deals, in particular the sale of Qantas, Peter Costello has declared Qantas a “special case” in the economy and that the airline will always remain Australia’s designated national carrier.
In an interview with The Age, Mr Costello said a combination of factors, including its status as national carrier, its large market share and its previous government ownership, made Qantas a special case.
He said the Macquarie Bank-led takeover proposal would run its course “appropriately” in the Foreign Investment Review Board, subject to existing laws, adding, “It is unthinkable that we would designate anyone other than Qantas (as the national carrier)”
“That is why you have to carefully assess these things,” adding, “Qantas will not be allowed to go into majority foreign ownership.”
He also strongly dismissed suggestions his concerns about the proposed Qantas takeover and about the role of private equity in the economy amounted to micro-managing either the transaction itself, or the activity in financial markets and he shares concerns with economists and analysts that the high levels of debt under private equity deals are risky if economic conditions change.
Mr Costello said the amount of foreign capital involved in the transactions meant that the architects of the deals were exposed in overseas markets, and the popping of the tech bubble earlier this decade showed booms could end in busts, adding, “My job as Treasurer is to warn of risks I see emerging”.
He also said, “Leaving aside Qantas for a moment, any company that is borrowing has to factor in external shocks and I would say the same thing to households, you have to factor in the possibility of an external shock.”
CommSec senior analyst Peter Ephraums, who has written a paper on the implications of private equity deals for banks, said that in deals such as Qantas, he suspected most of the lending was from foreign banks, but the danger was that, a few years into the deal, the banks could refinance and local banks could get involved, “increasing the risks for the domestic economy.”
He said the trend to a much more highly leveraged corporate sector posed risks if interest rates rose or if global demand from countries such as China changed, adding, “The Treasurer has to worry about those things … and the guys at the central bank, no doubt, think about that a lot.”
Opposition Treasury spokesman Wayne Swan also expressed concerns about the Qantas deal and private equity generally, saying “Foreign debt is already over half a trillion dollars, and the surge in private equity deals in Australia, to the extent that they are financed by foreign lending, clearly has the capacity to lift this figure even higher”.
Report by The Mole with material from The Age.
John Alwyn-Jones
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