GPG shares take pounding over tax proposals

The Government's new proposals to tax investments have helped to wipe more than $200 million from the market value of Sir Ron Brierley's Guinness Peat Group.

The plans, which may leave many private investors in GPG with bills for tax on any capital gains, were disclosed last Tuesday.

Since then the shares have fallen from $2.64 to $2.44 yesterday, taking total losses on GPG's market value to $206.5 million. As of yesterday its market capitalisation was $2.52 billion.

Selling has been heavy: yesterday was equal to almost three times last month's average daily volume. "There are obviously people who are nervous," said one analyst.

The tax proposals, due to be introduced next year, include plans to subject private investments in companies outside New Zealand and Australia to a tax on unrealised capital gains. At present such investments only face a tax on dividends.

GPG falls on the wrong side of the regime because its head office is in London.

It is calling for an exemption on the grounds that its shares are a core holding of most New Zealand investors, and that the majority of its investors are New Zealanders.

GPG says that without an exemption it will be forced out of New Zealand. The plan would tip the tax regime so much in favour of Australasian shares that GPG would have to better an already strong record if it was to maintain its share market rating.

Its shares would trade at an increasing discount to its net asset backing. Any fresh capital raisings would dilute the wealth and fuel the anger of existing shareholders.

As a result it would start to devote management to building a constituency for its shares in markets such as Australia where investors would not be affected by the proposals. It might also mean reducing financial commitment to New Zealand, where it owns shares in insurer Tower, among other companies.

Finance Minister Michael Cullen and Revenue Minister Peter Dunne have said they have no plans to give GPG an exemption. They say many GPG investors will escape because they fall below thresholds where the tax kicks in.

They have also engaged in a war of words since the proposals were released and the battle continued yesterday.

"The ministers should be careful," New Zealand chief Tony Gibbs said, "in suggesting that others are making statements which are misleading, bordering on untrue."