NZ 'as politically risky as Pakistan'

Business

Overseas fund manager slams 'political risk' in New Zealand after taking big losses on investments including Chorus

6th Dec 13, 3:44pm by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

An overseas fund manager is slamming New Zealand as being as "politically risky as Pakistan" after making big losses on investments here, including Chorus.

The manager of a multi-billion dollar London-based fund, the Newton Asian Income Fund, Jason Pidcock, was quoted in investment newsletter Citywire as saying that recent events in New Zealand had made him reluctant to invest further.

"We are not going to invest any more money in New Zealand for the foreseeable future. We have to rank it up with places like Pakistan in terms of political risk. This is a shame because it ought to be a developed and stable country," he was quoted as saying.

The €5.1 billion fund was reportedly down 7.2% between the end of October and December 3, with Pidcock crediting most of the losses to the political fallout in New Zealand.

Pidcock referred to "an extraordinary event in November" in which he said the NZ Government "reneged on a pricing agreement with telco firm Chorus".

'The regulator said copper prices needed to be reduced, and the government which had previously said it would overrule the regulator, wobbled, and has now got itself in a real pickle and can't get support to override the regulator," Pidcock is quoted as saying.'

Hie said the the "knock-on effect" had also hit Pidcock's other NZ holdings hard. Chorus itself was down 47.5% since the end of October, while Meridian lost 17.6% and Mighty Power lost 13.4% respectively.

Meanwhile Z Energy lost 10.4% and Telecom New Zealand's share price fell by 6.7% over the same period.

"It was a failure of the New Zealand government and it has caused a lot of upset in the investment community. It is akin to reducing the coupon on a government bond and has caused a lot of upset to the investment community in the country."

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27 Comments

by sHr0oMaN | 6th Dec 13, 4:02pm 1386298945

Fund manager loses money, blames someone other than self, still makes loads of money. Boo hoo </news>

by Grant A | 7th Dec 13, 8:46am 1386359203

I disagree Factboy. Like it or not Key is right. The election was very opening fought on the assets sales issue, LG made sure it was. When you vote for someone you have to vote for warts and all. Clearly it wasnt a big enough issue then and National won and implemented.. there is now a referendum result due to come out that will be the first formal confirmation as to whether the public in general want or don't want the asset sales, in which case it will be interesting to see if National complete the last one if it proves to be the latter, which I suspect it will...if they do carry on, you have a argument to further.

He is also right that if the result is a No then LG with excellent financial position to access if they get in at the next election will have to front and buy them back and cut back on other public expenditure. Genuinely interested to know if that's what you expect and want, because they' surely can buy them back cheaper now right ? Do the No's want them bought back and have less expenditure on the other things they want, or do we head down the US and Europe route and do it all and just borrow more ?

by Grant A | 7th Dec 13, 9:54am 1386363253

Youre right Factboy we won't agree especially when you bring tax and "wealthy" into it...50% dont pay any tax, the top 10% pay over 70% of the tax, and the top 20% (over $120k p.a.) pay 109% of the tax take....I'm not exactly sure how the "wealthy" are burdening the non-wealthy but pleas rtell me what percentage you think that 20% should pay ?. Yes parties come with a alot of policies, but facts are, if assets sales was such a BIG issue with Kiwis they wouldnt have voted National in..trying to arguing differently is nonsensical.

Although it sounds great, I guess the reason that they dont do "an extra question" is the same reason that business don't operate that way. Whilst democracy is the best of all systems noone is, or can be, over all the facts and arent qualified to make an informed decision on some subjects...non-PC maybe, but its the truth. Take your desire to borrow the money and buy back the assets...if you made that a puclic decision you would need to initiate a public education program on what that would or could mean..high mortgage rates than otherwise etc....something they may be happy with but they would have to be informed to make a decision..Govt by referendum would be a distaster. No to my mind you elect managers/Govt to manage the place and kick them out in 3-4yrs time if youre not sasified with the job being done.

by Grant A | 7th Dec 13, 11:50am 1386370204

But the point is Factboy, "the vast majority" won't be the ones paying it back as at least 50% of them don't contribute anything net to the system, its that 20% that's paying it back...that's my point and its pretty simple maths ? Yes some of those top 10 wealthy families may not be in the top 100 tax payers, and I have no problem with those from top to bottom that legally tax effectively organise their lives. As for all those extras taxes you propose ? Well I'm not informed enough to debate each of those but I guess there are ways to get that 50% up to 60% but I'd be more focused upon long-term solutions to make that 50% wealthier and ultimately tax payers, rather than always looking to someone else to pay for me.

by cowboy | 8th Dec 13, 7:35am 1386441336

For me the erection was fought on the $15/hr minimum wage. Keeping minimum wage down so small business and farming can still be viable, and entreprenuers can afford startups was absloutely critical.

People complain about house prices (in auckland only), and investment values. Yet we're becoming an economy of large "plantation" style companies (with little NZ ownership). Unable to compete with our foreign Massa's, we must toil in their factories.

Good busines spractice goes out the window (good product, cheaply) as the government puts in more certification steps, more checks by inspectors in our to "create" wellpaying jobs. More useless overhead procedures. This drives our prices up reducing our ability to compete in any market.

In return? Government (L&C) is paying out to special interest groups funding to enable them to function, rather than encourage good business practice. It then becomes a race for finding as many subside and approval payoffs as possible because that's the new profit center (that and advertising which has dubious value - seriously when did you run off to ANZ because of that sidebar ad?) because it's becoming impossible to create a good product (high per unit production cost) - much more effective to make useless product and get as many "out of the blue" payments instead to keep up the profit. eg Ultra-heat treated milk packets - yuk they taste like crap milk powder!! BUT by sponsoring milk-for-schools the company gets the "weeping heart" customers and a polltician gets to showcase his successful "message" (ie image).

The politician of course getting the image not for good policy or economic improvement but for being part of a team who are creating a bad situation and not fixing it (why kill the golden goose!)...but getting the media and weeping hearts for providing bandaids. (to a solution they should have let happen in the first place...but without the situation there would be no need for bandaids.....)

by cowboy | 8th Dec 13, 7:36am 1386441389

And if people think I'm wrong just think to how many of my predictions have been confirmed....

by dtcarter | 9th Dec 13, 9:31am 1386534692

"If National wins with a clear majority the Chorus shares will jump upwards as it is clear the a National government without United and ACT will change the law to override the Commerce Commission decision."

This is exactly the sort of political risk people are complaining about. There is a clear open transparent policy implemented by an independand body, that came to a pricing decision a long time ago and signaled it to the market. Then watched as National made vague statements that the decision wasn't acceptable, and that they would somehow prevent it from happening in order to prop up their Fibre policy which is in danger of failure due to the mistakes Chrous made in it's tendering and the mistakes the government made accepting their tender.

I'm a Chorus shareholder, but my wealth derives from far more than one shareholding, so i won't be voting National, for the sake of the economy as a whole.

by steven | 9th Dec 13, 9:46am 1386535575

Chorus, not so sure. Yes, Im sure the shareholders and banks had/have a clear expectation that they would be covered from loss by the tax payer, that after all is how PPPs across the world have faired. The problem for the Nats is right now bailing out the banks at the expense of the tax payer is a) a vote loser, b) sets a clear expectation that future PPPs would be pillages of the Govn purse, that would be another vote loser. So really I cant see the Nats changing the law....

I'll agree on the effect of the SOE share prices, though really their P/E is crazy for a utility already. They will tank when labour wins though I would think and lets face it, National winning a 4th term? cant see it, at best a SOE shareholder gains 3 years.

regards

by Mike B | 10th Dec 13, 11:39am 1386628791

ZZ zzzzzzzzzzzz

Let us all vote at the next election based upon what the sharemarket is doing and sod everything else.

As i have mentioned before our problem is not democracy but about freedom.

I do not understand why all those so called right wingers are NOT screeming for their freedom.

Democracy is about voting which dictator to vote for because when elected the dictator claims Sovereignty (power to rule over everything - claiming the right to be a dictator)

Our Sovereign government passes a Law (The Human Rights Act) granting (telling) us what rights we can and cannot have and then saying it (the government) can walk all over those rights.

What good is democracy without Freedom and why are the Right Wingers so silent about their Freedoms?

by ngakonui gold | 6th Dec 13, 4:24pm 1386300255

Would someone give mr pidcock a rag to dry his tears.

If chorus is his biggest loss then he has nothing to worry about.

by kin | 6th Dec 13, 4:30pm 1386300642

The only person to be blame is the CEO of Chorus....Hedge fund (or investment fund ??) is being childish and immature, throwing tantrum when he lost money....Grow Up Mr Pidcock.

We have a democracy here and even the Goverment of John Key is subject to Parliament...however much he may wish to please you....

by Boatman | 6th Dec 13, 4:39pm 1386301161

So fund manager or Investment Banker Piddly Dick is a bit annoyed at having to write down some assets , but he is quite dumb and did not read the signals.

Did he regard us as an emerging market or a developed market when he invested?WRT ot MRP & MEL , Did he not realise that our power consumption is in a mature phase , not going to grow , and that we are not an industrial Asian manufactruring economy .

He is required by UK law to Mark -to - Market the value of holdings , so its now exposed his unrealised losses

Many foreign equity fund managers and owners have been selling their shares on the strengthening Kiwi $ and taken the currency gains . We have had a good run and he came late to the BBQ . The NZX's bigger counters had increased in price by MORE THAN AUCKLAND HOUSE PRICES . They had become overvalued and had to come down.

Did he not look at why Telecom spun Chorus out of its control , its was writing on the wall ?

by Plan B | 6th Dec 13, 5:48pm 1386305288

We have to rank it up with places like Pakistan in terms of political risk. This is a shame because it ought to be a developed and stable country,

After saying this, if he really did say it, could any sentient being take him seriously.

by steven | 6th Dec 13, 8:59pm 1386316797

Yep, ironic. Of course you have to understand what the pillock really meant, which is blindingly obvious IMHO. "we expected to extract un-ending monopolistic profits off the Govn for investing with them in NZ just like we do in other developed nations" So he's pieved he didnt get to empty NZ tax payers wallets of as much as he thought he deserved.....at zero risk.

I think I mentioned morally corrupt earlier......

regards

by Henry_Tull | 6th Dec 13, 6:31pm 1386307872

We think he means by :

and the government which had previously said it would overrule the regulator, wobbled, and has now got itself in a real pickle and can't get support to override the regulator," Pidcock is quoted as saying.'

is this:

http://www.itnews.com.au/News/352727,nz-govt-overrides-regulator-to-set…

The New Zealand government is proposing to rewrite the country's telecommunications regulatory framework to allow it to set the wholesale price for access to the legacy copper network.

Adams is now proposing that the Government will set the wholesale price either itself or by directing the regulator, with a cost reduction for access seekers in the NZ$2.50 to NZ$7.50 a month band instead of the NZ$12 recommended by Gale.

Chorus at the time warned that Gale's determination would slash the company's earnings by as much as 40 percent.

Prime minister John Key stepped in immediately after the determination was released and said the Government would overrule the regulator if the price was set too low.

by Kumbel | 6th Dec 13, 8:03pm 1386313424

Chorus was always the rent-extracting part of Telecom. The "profits" booked by Rod Deane and Teresa Gattung were always based almost entirely on those rents. Apparently we should now be punished for having institutions capable of standing up against those rents. Good one, free marketeers.

by steven | 6th Dec 13, 8:52pm 1386316346

He should visit pakistan. have a chat to the taliban tell them what he does for a living, see how that works out for him.

regards

by KH | 8th Dec 13, 12:05am 1386414316

No sympathy for Mr Pidcock. Telecom / Chorus are expert at what the risks are. As should be investors like Mr Pidcock. This was no random decision. It was well expected. Mr Pidcock might be inventing excuses for his boss over his own incoptence. But aint fooling anybody. Best he be sacked.

by SmoKey | 8th Dec 13, 11:19am 1386454744

Oh yes, let us make the fund managers happy, at the cost of citizens' welfare and democracy in New Zealand.

by SmoKey | 8th Dec 13, 11:19am 1386454799

One more cry for 'privatise profits, socialise losses' from the wealthy.

by ARB | 8th Dec 13, 8:22pm 1386487345

P { margin-bottom: 0.21cm; }

Is there any president for the Com Com cutting a companies income by 20%?

The copper lines and the Com Com have been around long enough that yes it

is politically a bad look when a regulated listed company is suddenly told by

the regulator to cut its income by 20%.

by dtcarter | 9th Dec 13, 9:51am 1386535898

It wasn't sudden. It was draft pricing decision came out a long time ago, the final pricing was very similar so no surprises, and doesn't take effect till December 2014.

Any fund manager who was unaware of this is an idiot.

The political risk here is not that Chorus gets destroyed by it's low-ball fibre tender.

The political risk is that the government interfers with an open transparent monopoly pricing process, forcing all to continue paying outrageously high internet access costs, in order to prop up it's pet fibre project. It undermines any business investment because now when making an investment decision, you have to consider the risk the government will arbitrarily changes the playing field in favour of a competitor.

If a national Fibre network is so essential, pay for it out of a transparent tax levied on all phone connections, or pay for it out of general taxation. Don't pay for it by distorting the market proping up one particular company. How is it fair on the other Fibre companies that Chorus in particular gets government help? Shouldn't the government also be passing on the copper tax to Northpower, Waikato Networks, and Enable Networks? Why should the 25% of the country not getting Fibre have to pay a copper tax for something they will never receive? Why should a telco offering fixed line services have to compete against mobile services that don't attract the copper tax?

Nationals intervention in the market is just wrong on so many levels.

by Stephen Hulme | 9th Dec 13, 10:07am 1386536873

Yep, the inefficiencies of crony capitalism.

by cowboy | 9th Dec 13, 10:21am 1386537660

(Irrelevant comment deleted, Ed).

by Gareth Vaughan | 9th Dec 13, 11:11am 1386540675

Here's some comments on this from Bill English - http://www.stuff.co.nz/business/industries/9493844/English-puts-regulat…

by ARB | 9th Dec 13, 8:16pm 1386573395

Maybe I have a lack of knowledge. But why do you forgive the Com Com for letting pricing get 20% above what they think is should be? If pricers get to be more than 10% higher than what it should be is the regulator doing its job? I think this is a bad look.

by Chris-M | 10th Dec 13, 10:22am 1386624175

Does Mr Pidock know something that we don't. Did the Government really have an agreement with Chorus for the copper line price? This would suggest that the government was not treating all the parties that bid for the contract equally. i.e corruption. Not surprising given the way that they interefered directly in the Sky City deal. This is exactly the sort of thing that one gets in a bannana republic. Crooked processes, side deals, and government interference with due process when it doesn't suit arrangments they have made outside due process. A number of British investment houses came to the conclusion that NZ was market to be avoided for these very reasons many years ago when we also had a total free for all and little effective regulation of the equity markets. Mr Pidock is a bit slow catching up.