The sale of government owned health insurer Medibank Private has been in the cards for the better part of a decade. It has finally made its way to reality, where the Abbott government is looking to raise around $4 billion from the sale. News Limited reported last week that the government was considering a variety of sale options, including a public float on the Australian Stock Exchange.
An issue of free 'compensatory shares' to existing policy holders is also being considered, similar to shares handed out by health insurer NIB Holdings (ASX: NHF) when it first listed on the ASX in 2007. If it goes ahead this will be good news for policy holders, who will effectively own part of the nation's largest health insurer, as well as being indirectly compensated (via dividends) for the profit Medibank earns on their own insurance policies. Medibank Private holds approximately 30% of the national health insurance market, compared to international giant BUPA's 27% and NIB's comparatively small 7%.
If it does list on the ASX, Medibank Private will be one of the biggest IPOs in recent years and provides an excellent opportunity to potential investors. As fellow Motley Fool contributor Tim McArthur notes, government shares generally provide solid, reliable returns to investors. Partly this is due to the wide range of customers they serve, and also due to the core nature of the services they provide.
Companies such as Aurizon (ASX: AZJ) (formerly Queensland Rail) and Commonwealth Bank (ASX: CBA) were vital parts of the Australian economy when they were government owned; Medibank Private is one of the last giant corporations (alongside Australia Post) that is still in government hands.
Foolish takeaway
Incidentally, Medibank Private is already running as an at-profit business since Kevin Rudd overhauled the insurer back in 2009. Privatisation is not expected to result in premiums growing faster than the market rate.
I sincerely hope that Medibank does list on the ASX; depending on a number of factors (such as listing price), it could present an excellent opportunity to investors. Some investors are averse to IPOs because the shares are often available on market cheaper than they are at launch; however this is one potential IPO I would recommend investors watch out for.
