Which companies will benefit from the sale of $220 billion in government assets?

$220 billion in government owned assets that should be sold

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Just a few days ago Finance Minister Mathias Corman announced that the government owned health fund, Medibank Private sale will go ahead.

The deal is expected to raise around $4 billion for the cash-strapped Federal government, with next month’s Budget already tipped to be ugly. And it seems state governments are also being encouraged to sell off their assets. All up, an estimated $220 billion in government-owned assets could be sold including Australia Post. It seems it’s only a matter of when, not if, for the government owned letter-deliverer.

As an incentive for the states to sell off their assets, the federal government will provide extra infrastructure funding for badly needed rail, road, ports and other projects. It is also hoped the extra spending will drive an increase in productivity. And with many of the publicly owned assets such as roads and rail being unprofitable, a sale will reduce the drag on the government’s revenues.

The big winners of course are likely to be the companies hired to build that infrastructure, such as construction company Lend Lease Group (ASX: LLC).

Infrastructure Australia has noted that there is a greater need to charge road users for the privilege. Road spending is one of the largest infrastructure cost categories, but far outstrips road taxes and other charges including tolls. That could see significant opportunities for toll road operators like Transurban Group (ASX: TCL).

Of the $220 billion in assets up for sale, more than $100 billion is involved in electricity generation, transmission, distribution and retailing, which could offer opportunities for companies like Origin Energy (ASX: ORG) and AGL Energy (ASX: AGK). The water industry makes up an estimated $80-$90 billion of assets that could be sold off, with very few water assets owned by private businesses.

With New Zealand selling off a number of its assets, including stakes in energy companies Mighty River Power Ltd. (ASX: MYT) and Meridian Energy, and plans to sell more assets, including Genesis Power and partial sell down of Air New Zealand (ASX: AIZ).

Foolish takeaway

Many government-owned assets become much more profitable, once in the hands of privately owned and listed companies. The added bonus is that the sale frees up government expenses on those enterprises that are unprofitable, and investors get the opportunity to buy into businesses with loads of potential to drive costs down, improve productivity and in some cases, invest in monopoly businesses.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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