The ACT Party is proposing to list 49% of the shares in a range of state-owned companies, including Kiwibank's parent company, on the share market.
The proposal comes in ACT's alternative budget, released on Thursday ahead of the October 14 election.
The sales would come via an extension of the The Mixed Ownership Model, which saw sell-downs of power gentaliers Genesis, Mighty River Power and Meridian Energy, plus Air New Zealand under the last National-led government in 2013-14.
"The Mixed Ownership Model has significantly increased the profitability and performance of New Zealand’s electricity companies. ACT proposes to extend this successful model to more SOEs. In particular, we would list 49% of the shares in AsureQuality, New Zealand Post, KiwiRail (and the Railways Corporation), Transpower, Kordia, and Kiwi Group Holdings (i.e., Kiwibank and its subsidiaries)," ACT's alternative budget says.
The ACT alternative budget document refers to Kiwi Group Holdings. However another company, Kiwi Group Capital, was established in November 2022 to acquire and oversee the Crown’s investment in Kiwi Group Holdings, the owner of Kiwibank and mortgage and insurer advisers The New Zealand Home Loan Company. In March Kiwi Group Capital amalgamated with Kiwi Group Holdings, the previous 100% shareholder of Kiwibank. Kiwi Group Capital is chaired by David McLean, the former Westpac NZ CEO.
"A programme of limited asset sales makes good economic sense. At present, these firms in aggregate fail to cover their cost of capital: The Government is effectively borrowing money on taxpayers’ behalf to fund its investments in these firms, and the returns being earnt from those investments are not sufficient to justify their risk."
"Continuing to hold these assets on the Government’s balance sheet without significantly increasing their profitability is a waste of resources. By selling a good chunk of the firms, we would subject them to commercial accountability, improving their long-run profitability. The Government would also realise a large amount of money from the sales, allowing us to pay down a portion of the COVID-19 debt. Furthermore, it would deepen New Zealand’s capital markets, making them a more attractive destination for investment, and could improve the service received by customers," ACT says.
Current polling suggests ACT could be part of a National-led government after the election. National's not campaigning on any asset sell-downs. Its leader, Christopher Luxon, was CEO of Air New Zealand when the Government sold down its stake in the national carrier.
'Not that much of a hurdle'
In a recent episode of interest.co.nz's Of Interest podcast, I asked Kiwibank CEO Steve Jurkovich about the potential for a partial sell-down of the bank under a new government. Jurkovich said he'd heard no suggestion from either National or Treasury that it could be on the cards. However, he didn't think a move to a Mixed Ownership Model "would be that much of a hurdle for us," if it was to ever happen.
"Would that be a massive change for what we're trying to achieve and our purpose? I don't think so," Jurkovich said.
Jurkovich did say, however, that a requirement for Kiwibank to pay a sizeable dividend would be a significant change for the bank, if it was made. Kiwibank's June-year general disclosure statement shows it paid $14 million in annual ordinary dividends, equivalent to $1.86 cents per share. Its net profit after tax was a record $175 million.
Retained earnings are Kiwibank's key means of increasing its regulatory capital. Under Reserve Bank rules, Kiwibank's required to have a total capital ratio, expressed as a percentage of risk weighted exposures, of at least 16% by 2028. As of June 30 the bank was at 14.3%. The minimum requirement now is 10.5% being the basic 8% minimum plus a 2.5% buffer.
"We've been really clear that when there's a regulatory requirement for extra capital, we need to cut our cloth to suit that so we can grow at certain levels. We need to create enough retained earnings to do so. If you change that plan and want more dividends, then what you're probably signalling is a bit of a departure from wanting a bigger Kiwibank that's having more impact. So I think it's a pretty big, fundamental change. And ultimately, of course, if you grow Kiwibank then the New Zealand Crown has a more valuable asset," Jurkovich said.
"Dividend policies can change but we certainly haven't had that signalled to us," he added, noting a change would be a board decision.
In August 2022 the Government took full and direct ownership of Kiwi Group Holdings, buying out shareholders NZ Post, the NZ Super Fund and ACC in a deal that valued Kiwi Group Holdings at about $2.1 billion. Kiwi Group Capital has subsequently sunk $225 million into Kiwibank to bolster capital and help fund the bank's growth. This money came from the $310 million sale of Kiwi Wealth to Fisher Funds last year.
ACT also says the Mixed Ownership Model (MOM) has protections built in to protect New Zealand’s interests.
"In particular, no non-government shareholder can control more than 10% of the shares in a MOM company. Where Treaty of Waitangi concerns precluded the sale of particular pieces of land, we would retain them in Crown ownership and provide long-term leases to the SOE. The sale price of these SOEs is assumed to equal their commercial valuations. This is likely to be an overestimate for some SOEs and an underestimate for others. We have also assumed the sale process would take three years, starting in full-year 2024," ACT says.
Meanwhile, ACT’s Alternative Budget proposes the sale of 100% of LandCorp, or Pāmu, "likely in chunks, rather than wholesale," with proceeds used to fund conservation on privately owned land.
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