KEY POINTS:
New Zealand taxpayers are unlikely to extend a blank cheque to the Government to bailout so-called Kiwi "iconic companies" like Fisher& Paykel Appliances.
The public debate since John Key let his mouth run away with him at his post-Cabinet press conference this week has been instructive.
Key's lack of precision when answering journalists' questions sparked the initial news stories that the Government might mount a taxpayer-led financial rescue for the whiteware company.
There is no Government bailout under consideration for the simple reason that the company hasn't sought one, nor does it need it. It is still in profit - just. But it is a sign of these times that loose comments by the Prime Minister and F&P Appliances boss John Bongard quickly caused a speculative frenzy.
It took an intervention by Finance Minister Bill English to kick some sense into the debate. English's message is that ailing companies focus on commercial solutions. Bailouts were not a favoured option and would exact a high price on the existing shareholders who would obviously see their holdings diluted.
English suggests that instead of bailouts the Government may have to examine the statutory management option for a company facing collapse. But he emphasises this would be a last resort option.
The problem is that by mentioning statutory management (even as a last resort), major bankers to financially stressed New Zealand companies may become even more wary of extending further credit. The option has been rarely used in New Zealand.
It should only occur where the Government is satisfied that a company is, or may be, operating fraudulently or recklessly. Or it is considered necessary to protect the interests of creditors or the wider public interest. Or it is necessary to prevent further deterioration of the company's finances.
A statutory manager has some blunt tools at his/her disposal. They can freeze loan payments, install new managers and compromise creditor claims.
The critical issue in these difficult times would be whether any statutory management process imposed by the Government did in fact meet a "public interest" test.
Despite the untidiness of his comments, Key has probably done his Government a favour.
First, for exposing the depth of sentiment that exists against F&P for "turning its back on New Zealand" and shifting some manufacturing operations offshore.
Second, for the public support that exists for "market" solutions to F&P's plight rather than government backstops.
Judging by talkback radio traffic, discussions in business circles and the views reflected on the Herald website, New Zealanders are rather wary of the "iconic" label.
They would also rather see the company get a new cornerstone shareholder on board to provide equity than go crying to the Government.
There is an irony at work here. Bongard is down to chair a workstream on "Helping firms survive" at next week's Jobs Summit.
When he accepted Key's invitation to chair a session, Bongard must surely have been aware his company's fortunes would soon come under public scrutiny.
He has had plenty of discussions with Key in the lead-up to the summit.
Now that his own company has been exposed as a potential candidate for government help the conflict of interest question has been raised.
But it may be quite comforting to other stressed managers to be led by a CEO who is also having to navigate difficult territory.
Unlike tourism and retail, export manufacturing is not designated in the summit work papers as an industry that is highly threatened by direct exposure to the worst impacts of the global recession.
Bongard has said Key wanted to stop F&P falling into the "wrong hands".
Key has since refused to shed light on exactly what is at stake here.
But with the prospect of increased foreign investment in our companies becoming a live issue as financial conditions tighten, he needs to get some clarity in place.
The latest statements from Treasury yesterday on the state of the Government's books show income from taxation is $1.1 billion less than forecast. There is not going to be much available for bailouts.
Best not to scare off potential investors - wherever they come from.
