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Meeting relevant tests

Meeting relevant tests
Test 1: The Government would maintain a majority controlling stake by owning at least 51% of the company.

Maintaining majority government ownership is readily achievable by ensuring that at least 51% of each of the companies under consideration is retained in Crown ownership.

The exact percentage offered in each company will be subject to detailed examination and will reflect consideration of planned capital expenditure and dividend reinvestment plans.
Test 2: New Zealand investors would be at the front of the queue for shareholdings, and the Government would need to be confident of widespread and substantial New Zealand share ownership.

There is substantial capacity between KiwiSaver, other managed funds, iwi, retail investors, and the Government's own investment arms - including the NZS Fund - to support strong domestic demand.

Initial Public Offerings (IPOs) are the preferred method of extending the Mixed Ownership Model given the Government's desire to achieve widespread and substantial New Zealand ownership.

As set out in the box on the following page, this test could be achieved in a number of ways.  Final decisions on the precise arrangements that will be adopted to ensure this test is met will not be taken until detailed scoping studies have been completed.
Test 3: The companies involved would have to present good opportunities for investors.

Engagements with market participants to date confirm that all companies under consideration have the potential to provide good investment opportunities.

Some flexibility will be maintained in the exact timing of any extension of the Mixed Ownership Model to enable potential complexities and volatility in global equity markets to be managed.
Test 4: The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow. The extension of the Mixed Ownership Model has the potential to fund significant new public assets and substantially reduce the pressure on the Government to borrow.  The Treasury has estimated that proceeds are likely to be in the order of $5 billion to $7 billion, based on the latest commercial valuations available and assuming no measures with potential value impacts, such as price discounts, are in place.
Test 5: The Government would need to be satisfied that industry-specific regulations adequately protected New Zealand consumers. We are confident that regulatory settings, including changes in train through the Electricity Authority and the Government's water management workstream, are adequate to protect consumers.  Although recent regulatory changes are expected to exert downward pressure on future prices, electricity prices will continue to reflect the cost of new generation and are likely to rise over time, regardless of whether any changes in Crown ownership occur.

Together with advantages offered by a Mixed Ownership Model, these five tests will guide the design of a mixed ownership programme of offerings. The programme will also be designed to meet objectives to minimise programme execution risks and to ensure the programme is well advanced by 2014 so as to allow capital to be released to finance near-term priorities.

Giving New Zealanders first priority and ensuring widespread and substantial New Zealand participation

The Government is committed to giving New Zealand investors first priority in extending the Mixed Ownership Model and ensuring widespread and substantial New Zealand participation.

We are confident there is likely to be strong domestic demand and that it would be feasible for New Zealand investors to fill the majority of a carefully designed programme of offerings. Potential investors include:

  • the Government's investment arms, such as NZS Fund and ACC, that have total combined assets of $39.5 billion as at 30 June 2010[4]
  • domestic institutional investors - around $7.6 billion worth of investments in domestic equities and $27 billion worth of total equity investments are currently held by New Zealand households in superannuation and other managed funds, such as KiwiSaver accounts,[5] and there is also substantial capacity among iwi investors, with assets held by Iwi/Runanga and other Māori entities estimated to total $10.6 billion in 2010[6], and
  • domestic retail investors - as at December 2009 around $100 billion was held by domestic retail investors in term deposits and other short-term accounts.[7]

A number of specific measures could be adopted to ensure this test is met, such as:

  • a priority allocation, pre-registration and instalment receipts
  • financial incentives, such as price discounts and loyalty shares, and
  • hard ownership restrictions, such as individual or total ownership caps, or separate domestic shares.

No final decisions will be taken on the precise arrangements that will apply until the results of detailed scoping studies have been considered.

Notes

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