Should the NZ Super Fund buy SOE stakes? Your view?
The New Zealand Superannuation Fund has signalled an interest in buying stakes in state owned assets, possibly including Kiwibank, if the government pursues suggestions of state asset sales after the next election.
(Update adds video of Gareth Vaughan's interview with Super Fund CEO Adrian Orr).
Here is Part II of the interview with Gareth.
Meanwhile, the Green Party has argued that a sale of Kiwibank or other SOE stakes to the NZ Super Fund, sometimes referred to informally as the Cullen Fund, would not protect the assets from eventual foreign ownership. Co-leader Russel Norman said the Government should allow Kiwibank to retain its dividends to keep growing and competing with the big four Australian banks.
“Kiwibank is essential to ensuring competition in the New Zealand banking sector. Without it, the big four Australian banks operate an oligopoly, siphoning off much needed capital,” Dr Russel Norman, Green Party Co-leader said.
“Just yesterday Southern Cross analyst TS Lim said Australian banks take an interest in Kiwibank because it makes life difficult for them in this country, while Finance Minister Bill English admitted to me in the House that Kiwibank contributes ‘a much-needed element of competition’.
“At some point, all Super Fund assets must be sold off to fund the superannuation of the baby boomers,” Dr Norman said. “Once Kiwibank is privatised it will inevitably end up in foreign hands whether it is first sold to small shareholders and then on-sold, or if it is first sold to the Super Fund who are then are required by law to liquidate their assets.
“The Government should allow Kiwibank to retain its profits over the next ten years so that it can build up the necessary capital reserves to break into business banking for medium and large businesses.
“Households with mortgages have already saved millions because Kiwibank drove down interest rates on home mortgages, but New Zealand businesses have yet to benefit because Kiwibank is still too small to break into that market. “We need a long term strategy for a competitive banking sector, and only a publicly owned Kiwibank is in a position to guarantee that,” Dr Norman said.
The idea of the NZ Super Fund buying a stake in Kiwibank is superficially appealing. It seems to fix a problem the government has in funding Kiwibank's growth without having to keep forgoing dividends.
It's possible an NZX float to local Mum and Dad investors could raise the necessary NZ$100 million Kiwibank needs to keep growing. But, realistically, there isn't enough supply of local capital in our own market to support a larger float of Kiwibank or other state owned assets. The only big enough local player on the block now is the NZ Super Fund. The discipline of an NZX float would be good for Kiwibank and other state owned assets. It would remove many of the hidden subsidies and inefficiencies currently buried inside their books.
The best example of a state-controlled asset that is working well as a commercial company listed on the NZX is Air New Zealand. It is profitable, commercial and innovative. Having an independent board with independent directors and a market orientation is a good thing.
But, in the end, it seems the government is still funding Kiwibank's growth, just via another arm with a few extra funds management costs thrown in.
There is actually an argument to shut down the Cullen fund completely and use the savings to either repay government debt now or avoid new debt in the future. My instinct is always to repay debt or avoid new debt before any savings.
Your view? I welcome your thoughts and comments below.