KEY POINTS:
The partial sell-off of some state-owned enterprises could help create an "ownership society", says Scott St John, head of sharebroking industry representative the Securities Industry Association.
"It would be good to evolve the savings culture to the point where all New Zealanders embrace financial assets for the purpose of saving for their retirement."
St John, who is also chief executive of sharebroker First NZ Capital, says although the public has made it clear it wants to own and control SOEs, the emergence of KiwiSaver and a savings debate has "raised a much louder voice" questioning what some of the solutions to that could be.
Comments by deputy National leader Bill English last week about the merits of partial privatisation of assets have highlighted growing market expectations that a National Government would give the NZX a boost through the sell-off of some SOEs.
This week a report by sharebrokers Goldman Sachs JBWere and First NZ Capital - and sponsored by the the Securities Industry Association (SIA) - highlights New Zealand's poor household savings record and points out the importance of making wise investment decisions in such an environment.
The report, called Savings in New Zealand, features partial listings of SOEs as one option for improving the country's "poor" household savings record.
Latest estimates suggest household spending exceeds income by 14 per cent, the report says, while household borrowing has increased: the aggregate household debt runs at almost 170 per cent of disposable income.
Prices for New Zealand's commodity exports are doing extremely well, especially in the dairy sector, yet New Zealand still has to borrow from overseas, the reports says.
"Why should we care? In essence New Zealand is becoming increasingly reliant on the positive sentiment of offshore investors to pay the bills."
New Zealand's sharemarket capitalisation has sunk to emerging economy levels as a share of the economy from a position that was not far off peers such as Australia and Canada 10 years ago, the report says.
Also, New Zealanders' passion for finance companies is a result of a lack of alternatives and an inability to gauge risk.
"This is a direct result of weak capital markets. The current finance company crisis is an example of how this damages ordinary New Zealanders," St John says.
Local investors are forced to look overseas to diversify their portfolios, and partial sales of some SOEs would boost local investment.
Most of the cash that will go into KiwiSaver and the New Zealand SuperFund will be invested overseas, says First NZ Capital director of investment banking, Carl Blanchard.
Overseas ownership means a number of companies left in New Zealand are subsidiaries and the decision-making has been exported to Sydney, Singapore and Hong Kong.
"That impacts current account deficit, balance of payments, also the types of people that want to live in New Zealand and contribute to the economy of New Zealand and that has a whole GDP element to it."
The small size of New Zealand's sharemarket largely reflects the takeover of a number of large companies and a lack of new listings, says the SIA report.
"Privatisation would increase the market capitalisation of the NZX, raising the pool of investable assets and encouraging diversification."
Investor appetite is definitely there, Blanchard says.
About 220,000 retail investors bought shares in the former SOE Contact Energy during its IPO in 1999.
And, more recently, Rabobank raised $900 million in its first securities offer to the New Zealand public after it had sought a minimum of $400 million in its perpetual capital securities offer, a form of debt.
Retail investors, probably seeking refuge from the shaky finance company industry, took about 75 per cent of the bonds from the Netherlands-based bank.
The rigours of market discipline are extremely valuable, says Blanchard.
Although the Crown employs people [Treasury and the Crown Company Monitoring Advisory Unit CCMAU], to monitor its companies, they get only [the monitors'] perspective, while listed companies benefit from a number of views, including research analysts, he says.
So which of the Government's 39 companies are likely candidates for sale?
In the 2005 election National announced a policy to gradually sell farms owned by Landcorp and to consider selling part of Solid Energy.
The energy companies would be an obvious first choice, says the New Zealand Institute's David Skilling,
"They're profitable, so would free up large amounts of capital, their earnings and revenue streams are easily understood, and they operate in well-regulated environments so aren't risky investments."
He questioned the benefits of putting science companies such as the New Zealand Institute for Crop & food Research, or the New Zealand Forest Research Institute up for grabs too early.
"You'd have to ask, what's the market demand for those companies as investments?
"Retail investors have a higher risk profile so you would probably want to start at the less risky end of the scale to get momentum going."
NZ Post is another obvious candidate, says Blanchard, pointing out that all its functions are carried out by the private sector anyway.
But that company's close links with publicly popular KiwiBank probably put it off-limits, he concedes.
NZX head of market products Geoff Brown suggests electricity generators, a couple of which might be looking to expand their generator capacity, could issue debt. "They're high quality companies and it would be great to have that sort of instrument for the investing public."
If SOEs listed, there should be well-defined, non-negotiable boundaries, Brown says.
For example, companies with a high percentage of Government shares could have different classes of shares or voting rights or dividends [as happens in some overseas companies].
One model won't fit all, says St John, and rigorous debate about other proposals is necessary.
"My sense is the public want to own and control these assets.
"But there is a much louder voice starting to embrace the emerging savings debate and what some of the solutions to that could be. [We need to] make calls on what really works well in the SOE model and hang on to that, but there may be other things that could be improved, some of those things could take you down a partial listing model."
Selling SOEs isn't such a "red button" issue any more, says Skilling.
"Privatisation could be done pretty quickly. There's nothing standing in the way, it doesn't create the firestorm it used to.
"If a lot of thought was given to where ownership would lie that would take a bit of heat out of the issue."
