By Bernard Hickey
Finance Minister Bill English has reassured Kiwibank depositors that the current New Zealand Post guarantee of Kiwibank would be replaced by a direct Government capital facility to protect the bank in the event of any stress.
His comments followed the announcement earlier today of New Zealand Post's plans to sell 45% of the Kiwi Group Holdings, which owns Kiwibank, Kiwi Insurance and Kiwi Wealth Management, for NZ$495 million to ACC and the New Zealand Superannuation Fund. The deal will be associated with the removal of NZ Post's guarantee behind depositors of Kiwibank, which is expected to trigger a one notch downgrade in Kiwibank's credit rating to single A from A+. The other big four Australian-owned banks have AA- credit ratings.
English also said he expected New Zealand Post to maintain its 55% shareholding, even if ACC and the NZ Super Fund choose to invest more capital to further growth Kiwibank. He said the Government expected NZ Post to pay dividends in future, but that the Government had not ruled out putting more capital into Kiwibank through New Zealand Post if ACC and NZ Super judged that the was the best way to grow the value of the bank.
English welcomed the addition of the new shareholders, which he said would add commercial acumen to Kiwibank's board and give it avenues for funding its growth.
English said the removal of the New Zealand Post guarantee was not a major issue, and would be replaced anyway by a direct Government facility.
"The guarantee was not a strong one in that you had an entity worth a NZ$1 billion guaranteeing NZ$17 billion of banking assets," English said when asked about the New Zealand Post guarantee being removed.
"It wasn't really an effective guarantee, but now that's been replaced by an arrangement where the Government underwrites any capital requirements related to the bank coming under pressure," he said.
"That's yet to be finalised in detail, but there'll be a capital facility there so that depositors know that if anything went wrong with Kiwibank then the Government is able to stand behind it," he said.
"It's a capital facility. It's not like a deposit guarantee because in New Zealand we don't have deposit guarantees, but it is a facility that Kiwibank can call on if in extreme circumstances it needed to repair its capitalisation," he said.
He compared it to the support the Australian-owned banks, ASB, ANZ, BNZ and Westpac, have from their Australian parents CBA, ANZ, NAB and Westpac.
"In the GFC the Australian parent banks stood behind the New Zealand banks. Kiwibank is a well capitalised bank. It meets all the regulatory requirements. It's a stronger bank than it was six or seven years ago during the GFC, it's well regulated and there's been no issues arising out of this transaction that would give the shareholder cause for concern at all. It's in fine shape," English said.
He agreed that depositors could be more confident in Kiwibank than the bankers who lent money to Solid Energy. Those banks received haircuts on their loans when Solid Energy collapsed.
Facility worth NZ$300 million
Later on Wednesday Kiwi Capital Funding's Head of Capital Geoff Martin said in a statement to the NZX that the Government already provided New Zealand Post with an uncalled capital facility that it " is able to utilise in order to support Kiwibank's capital and liquidity positions in certain circumstances."
Martin said if the deal proposed this morning proceeded then that facility would be replaced with a new uncalled facility whereby Kiwi Group Holdings (KGHL) would issue the Crown with NZ$300 million worth of uncalled convertible redeemable preference shares. KGHL would in turn Kiwibank with a corresponding NZ$300 million facility. This facility would have an initial term of 10 years, after which the Crown could terminate the facility with 5 years notice.
If any of the redeemable preference shares were converted, "one share issued to the Crown will be a "Golden Share" and will carry sufficient voting rights to ensure that the Crown will always, collectively with all other ordinary voting shares held by the Crown, carry a requisite super majority vote for all (ordinary and special) resolutions."
See more here on the previous capital facility by Gareth Vaughan from September 2011.
'No plans for dilution'
English reiterated earlier comments in a statement that the Government was determined to keep 100% ownership of Kiwibank within the wider Government balance sheet.
"It's 100% Government ownership and we've been very specific about that. It's essentially a transfer within the Government's balance sheet that will give benefits to Kiwibank with more commercial owners and access to capital," he said.
"NZ Post needs to pay down debt. They've got their own pressures for change and we want to make sure they're a viable organisation and that we'll get a dividend out of the transaction, but it's unclear what that is," he said.
He said it would be up to the board of New Zealand Post if it wanted to reinvest dividends from Kiwibank and/or inject fresh capital to fund growth.
"To the extent that NZ Post needs to participate (in any capital raising), that will be discussed with us. It will take them a while to settle down and make those decisions," he said.
"We would expect that the change in the ownership structure would mean it's easier for them to get access to capital to grow. They'll be making commercial decisions that will probably push them in the direction of growth and you've got a couple of significant Government owned investors who have the ability to find that capital," he said.
"We'll be expecting dividends from New Zealand Post. As I understand it, there are discussions going on between the respective shareholders about dividend reinvestment policies and so on."
English said he did not expect to see a significant change in the proportion of New Zealand Post ownership.
"If those shareholders decide to put more money in in a way that requires NZ Post to retain its shareholding, then the Government may be putting more capital in. We wouldn't rule that out," he said.
"We would expect to maintain those proportions for the foreseeable future," he said when asked about whether NZ Post's 55% ownership could be diluted by not contributing capital when ACC and NZ Super did.
English said the idea was first floated around 18 months ago and was not at the direction of the Government.