KEY POINTS:
Australian Reserve Bank chief Glenn Stevens has been sounding alarm bells about the danger of a private equity collapse, but on this side of the Tasman there has so far been silence from Alan Bollard.
In his role of ensuring that New Zealand's financial institutions remain robust and able to withstand any financial shocks, Reserve Bank Governor Bollard has undoubtedly been keeping a close eye on the wave of private equity acquisitions that took place in New Zealand last year and are certain to continue this year.
But Bollard's silence would seem to indicate he has found nothing to concern him unduly - yet.
What worries Stevens is that private equity firms are buying businesses with higher and higher proportions of debt, meaning they're increasingly vulnerable to a downturn and that any collapses could inflict damage on the wider economy. "Those offering high prices for businesses are essentially betting that, over the next several years, they can enhance returns by increasing leverage," Stevens warned in December in the typically cautious language of the central banker.
"The challenge remains for these institutions, and all of us, to understand how risk is changing in this new environment, and to remain aware that we may at some stage face less forgiving circumstances than we have enjoyed over the past decade."
In a statement that harked back to the corporate collapses of the 1980s, Stevens said: "Corporate leverage, and the associated exposures around the financial system, could be rather more prominent as an issue over the next five years or so than it has been for a couple of decades."
Nearly everything that Stevens said also applies in New Zealand - Australian private equity firms are snapping up local assets at eye-watering prices and loading them up with huge slabs of debt that will need strong earnings growth to service.
But there's one crucial difference. The money being invested is Australian and the loans are being made by Australian banks.
If a private equity company has a New Zealand investment which goes belly-up, most of the pain would be felt in Australia - Australian investors would lose their money and Australian banks wouldn't get their loans repaid.
Odds are that in New Zealand, the business itself would be sold to another investor and carry on much as it was before. That doesn't mean there's no cause for concern. New Zealand isn't completely shielded from any private equity rout.
If things do go bad, the Australian banks operating here will become much more circumspect in their lending and that'll make it much harder for private equity firms to borrow money to pursue deals.
But it'll also make it much harder for other businesses to borrow money to expand, with the inevitable cooling effects on the economy.
If there is a private equity collapse New Zealand might yet feel its chill winds.
Telecom Connection
They play fast and loose in Perth.
This week, though, it wasn't a mining entrepreneur talking up his latest prospect that captured attention, but a small telco - and New Zealand's biggest company got caught up in the hyperbole.
Junior Australian telecommunications company Amcom sent out some confusing messages about whether or not it was holding takeover talks with Telecom.
First, it said it was discussing with Telecom and others "industry rationalisation" and would provide the market with another update "if and when any such discussions lead to a transaction".
It didn't take much reading between the lines to conclude that Telecom was planning to take over the company. Certainly a case could be made for the acquisition. It would further boost AAPT's network in Australia now that Telecom has decided that expanding across the Tasman is the way to go.
But a few hours later Amcom - formerly known as International Mineral Resources NL Fibertel - put out another statement to provide "further clarification".
"This is to confirm there has been no discussion between Amcom and Telecom New Zealand regarding any corporate transactions involving these two parties," Amcom said.
All very mysterious.
We wouldn't want to impute any motives to Amcom and its conflicting statements, but rumours that Telecom was planning a takeover haven't done the company's share price any harm - up 25 per cent to A20c (22.5c) in the past couple of weeks.
And Amcom has signalled to the world that it's up for sale.
Telecom's name has been somewhat tarnished in recent years, but it was clearly quite valuable to Amcom this week.
No Garden Of Eden
So Auckland is to host the 2011 Rugby World Cup on temporary seats at Eden Park.
It is a pity that the World Cup organisers' grand vision of a waterfront stadium has now been whittled down to a few rows of temporary seats, probably made of chewing gum and cardboard.
Of course, whether Auckland gets a brand new stadium or upgrades a few seats is of no great importance. In fact, stadiums generally achieve nothing for an economy, aside from leaving debts that carry on years after the events for which they were constructed have ended.
But the fact that a third-best solution has been chosen is significant. It shows the huge difficulties of getting anything done in Auckland because the various layers of central and local government never seem able to agree on anything, and that puts a huge cost on the economy.
Take roading as just one example. A report by Australia's Allen Consulting Group for the Automobile Association has found that completing Auckland's western ring road - which would allow traffic to go around the city's outskirts rather than through the centre - would bring an extra $838 million a year in direct and indirect economic benefits.
The ring road is scheduled for completion by 2015 or 2016, if it can be paid for with road tolls, says Transit New Zealand.
But odds are it won't happen by then. Infighting and squabbling between the various layers of Government over whether tolls should be imposed and who should bear the cost will probably delay the project even further.
In the meantime, $838 million a year disappears though exhaust pipes and lost time as drivers sit in traffic.
