Fletcher rumbles set off alarms

Fletcher Building's possible shift of its headquarters overseas should deliver a wake-up call to the highest level, New Zealand Exchange boss Mark Weldon has warned.

Weldon, adding his voice to widespread consternation over the $4.1 billion building giant's possible move, said the news was the latest symptom of a less-than-benign business climate.

He said: "The consequences of denying that there is an issue here at a broader national level will be an economy that is hollowed out, with our best people and our best companies heading permanently offshore and taking with them our best chances of a great future and standard of living."

Weldon's concerns were echoed by Revenue Minister Peter Dunne and major institutional shareholders. Meanwhile, National's finance spokesman John Key raised the matter in Parliament.

He asked: "Has the minister seen [the] report that ... Fletcher Building, is considering joining a long list of New Zealand companies that have relocated their head offices to Australia, and does this concern him; if so, why does he not think it important enough to rush along his business tax review, to do something about just that situation?"

Finance Minister Michael Cullen said he had been advised that Fletcher Building had denied the report, but would not comment further. Fletcher Building has not denied the report.

Fletcher Building, New Zealand's third-largest listed company, is studying the merits of a move. Its shares yesterday rose 19c on the news to $8.95.

It believes shifting could help it attract a sharemarket rating at least as good as its less-dynamic Australian rivals such as Adelaide Brighton and Boral and lower its financial costs.

Chief executive Ralph Waters told the Business Herald: "Shifting is something we would not do lightly. We would have to have compelling financial reasons to do so."

However, its departure could deprive the Treasury of tax revenue worth $167 million for the whole company last year, and local shareholders may see tax credits they enjoy handed to Australian shareholders.

It would probably remain listed on the NZX, but the bulk of trading in its shares would likely shift across the Tasman, adding to the damage to local capital markets caused by the raft of other departures such as Ports of Auckland, Carter Holt Harvey and Powerco.

Weldon sympathised with Fletcher Building chairman Roderick Deane and Waters who had to consider a shift as part of their duties to shareholders.

But he said uncertainties over energy, the Resource Management Act, taxation and regulatory policy were at the forefront of business leaders' minds.

"Fletcher Building has been one of the few bright spots on the investment account and is also a major employer and a contributor to the wider economy and the tax base."

Key and institutional fund managers said if the trend continued local capital markets would be undermined.

"It would be a dark day for New Zealand if Fletcher Building relocated. We have to look at the savings industry and see if it's working properly. We have to look around the corporate tax rate," Key said.

Many fund managers, lawyers, accountants, bankers and brokers would be more likely to reside in Sydney than Auckland and Wellington, nearer the largest corporate clients.

This reduction in what Key call "ancillary services" could make it more difficult for local companies to raise capital.

Brook Asset Management principal and fund manager Paul Glass said: "I worry my kid will not be able to stay in New Zealand. There are going to be no high-level jobs available. We are going to be a branch office of Australia."

Dunne said it did not matter that Fletcher Building was not yet moving. The mere fact that it was considering a move needed to be taken seriously.

He said the business tax review, due to be implemented by April 2008, would take account of the competitiveness of New Zealand taxation policy against rival markets.

The "primary objective" of the review was to ensure that New Zealand was able to retain investment.

"We have to view these things with concern in a small economy."