Aussie investors get a taste of Kiwi

Strewth, mate - the New Zealand sharemarket is talking with an Australian twang.

Over the first half of this decade, Australian ownership of our biggest listed company, Telecom, jumped from five per cent to 22 per cent. It is now 21.6 per cent.

Ownership of the second biggest, Fletcher Building, exploded in 2002 from less than 5 per cent to 25 per cent. It is now 32 per cent.

The company that runs the sharemarket, NZX, has no breakdown of international ownership and while a Goldman Sachs JBWere report says 46 per cent of our market is owned overseas, it does not split out countries.

However, a flick through some of our top 10 stocks gives an indication of the size of the Australian appetite for our stocks.

Australian investors have big shareholdings in Auckland International Airport (28 per cent to 30 per cent), SkyCity Entertainment (27 per cent), Fisher & Paykel Healthcare (24 per cent), and Fisher & Paykel Appliances (15 per cent to 20 per cent).

"Over the past five years, there has been pretty significant net buying by Australian institutions where previously there was not a great deal of interest," says Richard Leggat, the head of research sales at sharebroker UBS in Auckland.

Sharebrokers say that buying has been an important factor in lifting the share prices of some companies.

Colonial First State - part of the Commonwealth Bank of Australia - is believed by sharebrokers to be the Australian institutional investor with the biggest exposure to New Zealand's sharemarket.

Lately a notable seller, Colonial First State is also remembered as a trailblazer for the big positions that it took here from the late 1990s.

Ian Harding, 45, led that charge as a senior portfolio manager and remembers piling into SkyCity and Auckland International Airport when they dual-listed on the ASX in 1999.

He is now involved in a marina near Sydney and is taking a break from funds management.

"A pioneer?" deadpans Harding when the Business Herald phones. "Yeah, I feel a bit like Ben Cartwright in Bonanza."

In some cases, New Zealand stocks function as alternatives to their Australian sector equivalents - Telecom versus Telstra, Fletcher Building versus building products company Boral.

Telstra, for example, is seen as operating in a more competitive environment than Telecom.

Australian institutional investors highlight the attraction of New Zealand businesses with dominant, near-monopoly or monopoly positions.

Examples are SkyCity - with the Auckland casino monopoly serving as the money-machine at the heart of the company - and Auckland International Airport.

The big wads of cash put into fund managers' hands by Australia's compulsory superannuation scheme are also stimulating investment over here.

"The sheer weight of the funds flowing into their market from super over the last three to five years means they've had to hunt around for ideas - and naturally they've sometimes ended up looking over here," says Mike Hare, an institutional sharebroker at ABN Amro in Auckland.

In the case of one company, Fletcher Building, the chief executive - Ralph Waters - is an attraction.

Australian institutions already knew and respected the Queenslander for his role in reviving the listed Australian industrial and whiteware company Email.

For Harding, during his time at Colonial First State, the attractions of the New Zealand market included the similar time zone and legal system and the generally similar reporting requirements for companies. Dual listings of New Zealand companies on the ASX helped to satisfy the mandates of clients.

He thinks of this as a market where Australian investors were able to invest in stocks in categories that were absent or under-represented in Australia.

He says SkyCity was listed before Australian casinos; Auckland airport was an unusual privatisation by world standards, with most airports owned by local or central governments; and New Zealand offered earlier examples of privatisations of state assets, with Telecom floated in 1990, while Telstra was part privatised in 1997.

"So, you could go and play in new industry categories that weren't in existence in Australia - although everyone thought they probably would develop.

"Particularly with the privatisation of Telstra. That was the big one. Go and play in New Zealand, get a feel for what to expect in a stock once it's privatised and transfer that knowledge across to the Australian market."

He remembers buying into Sky Network Televison - a share that yesterday closed at $6.50. "We started buying in at $3.40. We were buying every day for about a year and a bit. I think we ended up buying maybe 40 per cent of daily turnover for about a year.

"Most institutional managers would give up on some of these Kiwi stocks, because they want to get set straight away - they've got one minute to think about New Zealand, and two minutes to think about Australia, but if you're patient and take a medium-term view ... "

UBS Brinson, Perennial and Perpetual are among the other big fund managers to feature large on New Zealand share registers.

At the smaller end are players such as Caledonia - no relation to the Caledonia Investments plc listed on NZX - which holds 5.8 per cent of Fisher & Paykel Healthcare, and 452 Capital, the latter named after a cricket innings by Sir Donald Bradman.

"It's very important for us," says Fletcher Building's Waters. "When I came the Australian ownership was less than five per cent and today it's more than 30 per cent.

"Is that a good thing? Of course it's a good thing, because the more people you have interested in buying your stock, the more demand there is for it, the better the price, the better the liquidity."

He also regards investment from Australia as more likely to be long-term than investment from the Northern Hemisphere.

"The Americans have taken flight from New Zealand recently because they think the dollar might have had its run," says Waters.

Australians, calculating that their dollar and ours are in lock-step, are less skittish.

"So there's nowhere near the currency risk across the Tasman as there is with the Northern Hemisphere."

The biggest part of the jump in Australian ownership in Fletcher Building came after the company's $754 million acquisition of Australian building products group Laminex in September 2002. The Aussie institutions piled into the share placement that followed the purchase - paying a 5 per cent premium, instead of the typical discount, on where the company's shares had last been trading.

Waters recalls: "Something like 85 per cent of the entire capital raising was taken up by Australians. And they were people who were saying, 'Yep, good idea for you to come here and we'll get on board'."

He also remembers New Zealand shareholders were wagging their fingers, saying, "Don't you dare go to Australia".

"Now, they've moved on from that. All of our investors pretty much think the same way now, but it has taken us two to three years of growth and success in Australia to get the New Zealanders comfortable in that."

Fletcher Building's largest shareholder is one of Australia's biggest funds, Perpetual, sitting on 14.9 per cent.

A big part of the leap in Australian ownership of Telecom was when institutions snapped up shares after a cornerstone shareholder, the United States telecommunications giant Verizon, sold out in September 2002.

Telecom investor relations manager Geoff Zame says: "Our operating performance was also starting to improve and Australian investors were warming to the investment story." North American shareholders retain the biggest stake (26 per cent), New Zealanders are next (23.3 per cent), the Australians are third, and the UK is fourth (16.8 per cent).

SkyCity says its Australian shareholding has been "fairly consistent" at 25 per cent to 30 per cent for a number of years but retail investors have become a bigger part of the mix.

The company says Colonial First State held a bigger than 15 per cent stake before cutting back over the past two to three years.

Overall, Australian institutions hold 22 per cent and Australian retail investors five per cent.

A stock that has failed to get traction in Australia is Carter Holt Harvey, our seventh-biggest listed company.

Two years ago - when it was our second-biggest - the Business Herald reported that the company wanted to raise its profile across the Tasman, where about five per cent of its shares were held.

This week, a company spokesman said the shareholding in Australia had fallen to three per cent.

At local fund manager Brook Asset Management, principal Paul Glass says significant levels of Australian ownership are good for the market. "It provides greater liquidity in our stocks and an additional source of capital for our companies if they wish to grow.

"Also, we find that the New Zealand stocks that are dual-listed tend to be valued off their Australian peers." That means a higher valuation and a company less vulnerable to a takeover - important, says Glass, in a market where good companies have gone to overseas buyers at bargain prices.

DOUBLE DEALING

New Zealand stocks dual-listed in Australia include:
Air New Zealand
Auckland International Airport
Carter Holt Harvey
Fisher & Paykel Appliances
Fisher & Paykel Healthcare
Fletcher Building
Nuplex
SkyCity
Sky Network Television
Telecom
Tenon
Tower
Warehouse
Waste Management