Kiwibank CEO Steve Jurkovich says political uncertainty around a possible IPO a challenging factor for potential outside investors in the state-owned bank

CEO Steve Jurkovich says both Kiwibank and its parent company, Kiwi Group Capital, have "no indication at all" of whether there could be an initial public offering (IPO) of the bank's shares on the share market following November's election.

Uncertainty about whether there could be an IPO in Kiwibank's future was an issue raised by some institutional investors the bank and its advisors spoke with during an ultimately aborted $500 million capital raise last year, Jurkovich says.

"That uncertainty was something that some of them were concerned about," Jurkovich told interest.co.nz.

In New Zealand's Mixed Member Proportional (MMP) political environment, the views of both major and minor parties on sales of state-owned assets such as Kiwibank can be important.

"If you think about the main parties, one [National] seems open to the idea of an IPO and...then the ACT Party is 'I don't see why you'd want to own the bank at all,' based on David Seymour's comments. The Labour Party has started to put up the idea and sort of investigated early stages of what asset recycling might look like. Now, I don't know if we'd be in that mix or not. And then New Zealand First has had different positions on that sort of situation. So that's the background that you're thinking about. And that does come with uncertainty."

Asked if he has received any indication there will be an IPO if there's a National-led government after the election, Jurkovich says he hasn't.

"What I can say is we've got no indication at all...But I would expect, as the parties go into more campaign mode, we'll get some signals. But we're not in receipt of any signals as a bank, and I know Kiwi Group Capital aren't from Treasury or anyone," says Jurkovich.

The proposed $500 million capital raise was recommended by the Commerce Commission and endorsed by the Government to help Kiwibank better compete with the big four Australian-owned banks. However, on December 19 Kiwibank said it wouldn't go ahead. Reserve Bank regulatory capital changes and a $400 million Tier 2 capital raise meant the bank could "continue its strong growth without the need for additional equity," Kiwibank said.

However, Kiwibank also said; "it appeared unlikely ... terms would be able to be agreed with prospective investors that would meet Kiwi Group Capital’s objectives for the transaction."

'There's different ways to value a bank'

Jurkovich says some institutional investors had concerns about how they could potentially resell Kiwibank shares after buying them.

"What's the liquidity event and how would it work and how would it be calculated? And then as you work through that, there was a mixture of views around what that valuation would look like at the time. As you know, there's different ways to value a bank," Jurkovich says.

"And so there was kind of colliding perspectives on what the view would be, how that would work. And Macquarie, who were the investment bank [adviser] and Craigs Investment Partners, who were advising as well, they were working through those things. I think that was all solvable, but ultimately, that was the sort of next phase of what we were getting to, which we didn't pursue."

He notes an IPO would be guaranteed to attract some institutional investors simply because it'd mean Kiwibank's shares would form part of the passive funds their KiwiSaver funds need to invest in. 

Last November Prime Minister Christopher Luxon said NZ needed to have a sophisticated conversation about “asset recycling” or selling existing assets to help fund the purchase of newer ones.

Meanwhile, in terms of Kiwibank's capital position, Jurkovich says following the Reserve Bank capital changes and the Tier 2 capital raise, Kiwibank's in good shape.

"We've got $20 billion of headroom for home loan lending, or $7 billion worth of business banking lending. So that would double the size of our business bank, or it would be circa 60% more than we've got in the home loan space. So we feel like we're in good shape," Jurkovich says.

On Thursday Kiwibank posted a 12% rise in interim profit to $103 million.