Sharemarket at risk of losing biggest firms

The New Zealand stock market will be decimated unless the country boosts its savings rate, a leading fund manager has warned.

Paul Glass, principal of Brook Asset Management, a specialist fund manager with more than $1 billion under management, says many of the country's biggest companies are vulnerable to a takeover or will move voluntarily to Australia.

His comments come just days after internet auctioneer Trade Me accepted a $700 million offer for the business from Australian publisher Fairfax.

Glass blames New Zealanders' love affair with debt. At present, $1.12 is spent for every dollar earned and, instead of pouring that money into productive assets, Kiwis buy houses.

"If we don't create a savings base, the money will have to come from overseas, mainly Australia," he said.

The companies most at risk include energy giant Contact, now seeking a merger with its major Australian shareholder Origin; Fletcher Building; Sky City; Waste Management and Tower.

He contrasts New Zealand's poor savings rate with Australia, where more than A$100 billion ($112.93 billion) will be lodged with superannuation funds this year, thanks to the country's compulsory savings regime.

New Zealand's figure is likely to be zero or negative.

This high Australian savings rate sets up a virtuous circle, lowering the cost of capital and creating acquisition opportunities in markets like New Zealand where capital costs are higher.

Australian dominance of New Zealand share registers may also encourage companies to move to Australia so investors get the benefit of tax credits. At present, Australia does not recognise New Zealand credits.

"This is also a major threat to NZ's tax base as Australian companies will all seek to minimise the amount of tax paid in NZ - quite rightly as their shareholders cannot use NZ imputation credits," Glass said.

"New Zealand needs to take bold action or we risk losing our major listed companies to Australian investors. The stock market could be decimated."

The expected losses follow departures such as brewer Lion Nathan, Tranz Rail, now called Toll Holdings, and newspaper publishers INL and Wilson & Horton.

Glass advocates a beefing up of the KiwiSaver workplace savings programme. He says it should be compulsory, requiring people to contribute 4 per cent of their income and requiring companies to match employee contributions. The impost on business could be offset with a cut to the corporate tax rate.

David Skilling, chief executive of the New Zealand Institute think tank, agreed with Glass' assessment.

"There is a risk and we have no hope of growing the economy unless we take stuff like this seriously."

He agreed compulsory saving accompanied by corporate tax cuts had merits.

NZX chief executive Mark Weldon would not comment on the likely departure of companies but said the poor savings record hampered the growth of the New Zealand stock market, as did the country's relatively small population and its distance from major markets.

Local demand for high-quality IPOs demonstrated that New Zealanders were thirsty for quality investments.

Business Roundtable executive director Roger Kerr said the notion that New Zealand had a poor savings regime was wrong as it ignored the fact that business savings and government savings should be included in the measure. Meanwhile, compulsion might not work.

He highlights recent OECD figures that put Australia's savings ratio at 19.6 per cent of GDP in 2003, down from between 21.3 and 22.6 per cent in 1987-88, whereas New Zealand's was 18.4 per cent in 2003 compared with 18 per cent in 1987-88.


Under threat

* Contact Energy
* Fletcher Building
* Sky City
* Auckland International Airport
* Waste Management
* Tower
* MediaWorks
* Freightways
* Mainfreight
* The Warehouse