Partial listing plan gets thumbs-up

Air New Zealand's mixed ownership is seen as a model for partial privatisation in a bid to attract a new generation of investors. Photo / Sarah Ivey

Market leaders have welcomed a commitment by the Government to consider partial privatisation of four state-owned enterprises but have warned careful execution will be needed to ensure ownership is open to a wide range of New Zealanders and the assets remain locally owned.

Prime Minister John Key yesterday said the Government had asked Treasury for advice on the merits and viability of extending the mixed ownership model used by Air New Zealand to four other state-owned companies - Mighty River Power, Meridian, Genesis and Solid Energy.

The Government owns 76 per cent of Air New Zealand, with the rest listed on the NZX. But it wants to consider lowering this to 51 per cent. It would also maintain a majority shareholding in the four other SOEs.

Key said the change in ownership structure would help broaden the pool of investments for New Zealanders while the companies would "reap the benefits of sharper commercial disciplines, more transparency and greater external oversight".

Scott St John, managing director of investment bank First NZ Capital and a member of the Capital Markets Development Taskforce, said the Government's proposal was in line with its recommendation to fill market gaps via listings in a way that did not need to compromise long-term control.

"I think it is good news that the Government is considering ways to recycle equity into new assets and is paying a great deal of attention to its balance sheets."

But he warned it would be no "silver bullet" fix for the sharemarket.

"There has been a lot of time and effort put into rebuilding the foundations of the investment market and this will be, if it eventuates, another very constructive step in that journey. But there is no silver bullet to rebuild the market. It will take quite some time and lots of small steps."

NZX chief executive Mark Weldon described the Prime Minister's announcement as bold and visionary.

Weldon said if the floats went ahead there would be "incredible appetite" to invest in them.

"We have had $14 billion that shouldn't have been invested into finance companies. There is an enormous amount of money out there looking for a safe investment."

Weldon said the four energy SOEs were established businesses with scale, strong market positions and genuine cashflow.

"They are blue chip and what the market has lacked is blue chip investments." But he said there needed to be work done to ensure the investments were available to any New Zealander, not just those who had owned shares in the past.

"Owning shares is the best way of educating people about them."

Weldon was not concerned about New Zealanders buying into the companies and then flicking them on to foreign investors.

"If you look at Contact Energy it still has the largest register. Most New Zealanders who end up owning shares in a Contact, AMP or Auckland Airport hold on to those for a long time."

Deloitte partner Paul Callow said partial privatisation would impose stronger commercial disciplines and make the SOEs sharper.

"It will make SOEs subject to public disclosure and reporting rules as a public company. Companies will need to be more competitive to create value, which will be transparent through the share price and which directors will be accountable to investors for."

Callow said the Government had removed one major public objection by stating that it would remain a majority shareholder but if it went ahead with the floats it would remain exposed to fallout from the public if the value of the company's shares fell dramatically.