By Alex Tarrant
Prime Minister John Key says the public should trust his government’s word it will not sell more than 49% of five State Owned Enterprises, although there will be no legislation to stop future governments from doing so.
Meanwhile, there was no guarantee those stakes sold off would not enter foreign ownership, although Key was confident New Zealand investors and institutions would look to hold the shares as long-term investments.
His comments follow an announcement from Finance Minister Bill English that the government expected New Zealanders would initially own at least 85-90% of the companies being sold in any National Government floats of SOEs after the November 26 election.
This would mean if the government retained a 51% stake and sold 49% in an initial public offering in a share market float, then about 30% of the shares could go to foreign-owned funds or individuals.
English said in a speech delivered by SOE Minister Tony Ryall that any National government would look to set an ownership cap of 10% for any stake in the floated SOEs.
New Zealand investors would be first in the queue when it came to allocation of shares, although foreign investors would be invited to participate in initial bidding so the government could get the best sale price for the shares, and hence value for taxpayers, Ryall said.
That would mean Kiwi investors would not be in line for purchasing the shares at a reduced price, something that had been considered to promote local ownership.
See more here in our June 30 article on Treasury advice on using the SOE sale process. Treasury had looked at incentives to keep shares in local hands, but advised against it because it would lower the likely sale proceeds.
Labour Leader Phil Goff attacked the government's announcement, saying it was little more than a shallow con job (see his comments in the video below).
Key said it would take a brave future government to sell down State ownership in the SOEs further than the shares a National-led government would sell if it won the November 26 election.
The government was giving a guarantee that majority stakes in the SOEs would be held by the government. There was no technical guarantee though that the 49% stakes sold off would remain in Kiwi hands.
“There’s no particular reason for, all of a sudden, every New Zealand investor to decide that’s not a good idea to hold their shares," Key told media in Parliament on Wednesday afternoon.
“If you think about KiwiSaver accounts, they’re often investing for a 30 year horizon. We know Iwi are going to invest for a very long horizon, we know the New Zealand Super Fund and ACC will be long-term investors," Key said.
“So it’s just not credible to believe that every single shareholder is going to sell all their shares. Actually if you go and have a look at the Contact [Energy] share registry, that’s a good example of how in fact it’s been widespread, and held by New Zealanders over a long period of time,” he said.
“In reality I think we live in the real world, and in the real world every New Zealander is not going to sell. Why would they? They’re liquid long-term companies.”
The government would not be legislating to ensure State ownership of the companies could fall below 51%.
“I think the feeling is we don’t need that. But look, we have built up over the last three years, I think, a very strong sense of trust with the New Zealand public. When I say I’m going to maintain 51%, or [not] sell more than 49%, I think New Zealanders will take me at my word," Key said.
“I can’t bind future Parliaments, but my view is it would be highly contentious for any future government to want to sell down the majority stake," he said.
'NZers will own 85-90%'
Earlier on Wednesday, English said there was a large and growing pool of New Zealand investment funds to ensure strong local demand for any National Government sale of NZ$5 billion to NZ$7 billion worth of shares in the four state owned energy companies (Mighty River Power, Meridian Energy, Genesis Energy and Solid Energy) and more of the already listed Air New Zealand, which the government holds a 76% stake in.
"As a result, ministers expect New Zealanders to own at least 85 to 90 per cent of the companies in the mixed ownership programme, including the Government’s majority shareholding," English said.
English said the Government would spend around NZ$78 billion to build up other state owned assets over the next five years, on top of the NZ$220 billion of assets it currently owned.
“The mixed ownership model is a win-win. New Zealand savers get to invest in good Kiwi companies. And the Government frees up NZ$5 to NZ$7 billion over three to five years to buy new assets like schools, hospitals and ultra-fast broadband, without having to borrow from overseas lenders and increase our debt," he said.
“We would rather pay dividends to New Zealanders than interest on rising debt to foreigners," he said.
“We have also promised that New Zealanders will be at the front of the queue for shares."
English said New Zealand investors currently had more than NZ$300 billion invested in assets, excluding their own homes. These included money in bank term deposits, bonds and rental property.
"The 34 registered KiwiSaver providers have about NZ$9 billion invested and will double in size over the next four years," English added.
New Zealand fund managers currently had about NZ$59 billion in funds under management, with government-owned fund managers including the NZ Super Fund, the ACC and the Government Superannuation Fund (the state servant pension fund manager) having almost NZ$40 billion under management.
Iwi are also estimated to have over NZ$10 billion of assets under management.
“So the mixed ownership model, spread over three to five years, is small compared with the size of the local capital pool,” English said.
“New Zealanders are also telling us that they are hungry for other investment options, particularly with the shine having come off the investment property and finance company sectors," he said.
Final arrangements for the SOE share sales would be made next year after the election.
“But it’s the Government’s intention to impose a maximum shareholding cap on the mixed ownership companies. That cap is most likely to be 10 per cent.”
Kiwis will take the price that's set
Ryall said a price would be set for the shares in the companies by investors and institutions first indicating to the government what they thought the prices should be.
“Then a price is set, that’s the offer price that is then set across the request of all the shareholders," Ryall told media after giving the speech.
"For example, Kiwi mums and dads, as we found with the last floats, they take the price that’s set, and that’s being set by the tension of, really, the institutional investors – the super funds and the KiwiSaver and the other investors," Ryall said.
Foreigners involved to get best value
Ryall said foreign investors would be involved in setting the share price so taxpayers got their best value for money when the government sold the shares.
That best value would be found by indicating to foreign investors there was a proportion of the shares they might be able to purchase - an important move in determining the price of the shares.
Following the process of deciding a share price by reviewing bids from both Kiwi and foreign investors, the government would invite bids from all parties, but allocations would be made to New Zealand interests before foreigners.
“When we float, for example, the first company, we will have New Zealanders...first in the queue, and we will also invite though a number of foreigners [who] will be able to participate in bidding for the shares – that’s to make sure that we get the best value for New Zealand taxpayers," Ryall said.
“But when we come to allocate the shares we’re making it very clear that New Zealanders are first in the queue, and that we expect that over the programme, New Zealanders will own between 85 and 90% of the shares, including the 51% that the government owns,” he said.
“If New Zealanders bid for these shares at the right price, then New Zealanders could end up owning 100% of what’s being floated.
"What we’ve indicated though, is when you make an assessment of what the likely level of investment from New Zealanders and super funds and KiwiSaver is going to be, we may end up with a small proportion of foreign investors involved in that as well, in order to get a good price for New Zealand taxpayers,” Ryall said.
Here's Ryall delivering the part of the speech in which the government announced the government's intention of a 10% shareholding cap
'It's a con job'
Meanwhile, National’s announcement on the SOE sell-down was a shallow con job that beared little resemblance to what would happen if the SOEs were sold, Labour Leader Phil Goff said.
“National doesn’t seem to understand that once shares are sold they are gone forever. There is no way to guarantee that they will remain in Kiwi hands,” Goff said in a media release.
“Bill English and Tony Ryall clearly don’t understand what it means to sell something, if they think they will have any control over what happens to shares once they are floated on the market. National’s claim that shares will stay in New Zealand because Kiwis are ‘hungry’ to invest and that because of this dividends will remain in this country are simply not credible. The cost of living is spiralling out of control, while wages are barely growing. Kiwis are struggling to make ends meet let alone having additional money to spend on the stock market," Goff said.
“It is once again clear that National is simply hoping that people don’t look too closely at the details of their announcement. The recent release of the annual reports reveal that the companies that National wants to sell returned NZ$900 million in dividends to Kiwi taxpayers in the 2011 financial year. Under National’s plans much of those dividends will in the future end up overseas," he said.
“National’s policy will see hundreds of millions of dollars in dividends heading off-shore. That is simply economic madness. Labour’s economic policy will ensure a strong export lead growth economy and allow us to keep our assets at the same time.”
(Updated with Ryall comments, Key, Goff, videos, details)