Regulatory impact analysis
The SOP includes economic interests in the 51% floor and 10% cap, to ensure consistency with the Confidence and Supply Agreement. It does so through three amendments to the Bill. They provide that:
- the Crown must hold 51% of every class of shares in the company (voting as well as non-voting), as well as 51% of the voting securities. This change will secure the 51% floor for both economic and voting interests;
- no shareholder, other than the Crown, will be able to have a relevant interest greater than 10% of any class of shares (whether voting or non-voting) or more than 10% of the voting securities in a MOM company. This change will secure the 10% cap for both voting and economic interests; and
- as a penalty for exceeding the 10% cap, no dividends or distributions will be paid in respect of those shares or securities that exceed the 10% cap. Restrictions on voting for shares in excess of the 10% cap are already contained in the Bill.
It is also anticipated that the draft constitutions of the MOM companies will be updated to reflect these changes.
Floor and cap
No options other than amending the 51% floor and 10% cap to include non-voting shares were available. The amendment will ensure that the Crown retains control of each MOM company, while at the same time giving the MOM companies the ability to issue debt without the Crown having to subscribe for at least 51% of each issue.
That said, the SOP will have the effect that where the companies wish to use non-voting shares to raise capital, the Crown will need to subscribe for at least 51% of each issue of non-voting shares, to allow the issue to proceed. The Crown, like every other shareholder, will need to be persuaded that the proposed use of the capital is sensible, before subscribing. The issue of non-voting shares is very uncommon: we are not aware of any current instances in New Zealand of listed companies issuing non-voting shares.
No other impacts are expected from this change.
Penalty for exceeding the cap
The SOP contains a new penalty provision - no dividends or distributions will be paid to shares in excess of the 10% cap. This has the following effects:
| Penalty options | Objectives achieved? | Impacts | |||
|---|---|---|---|---|---|
| Maintain Voting Control | Maintain Economic Interest | Costs | Benefits | Net Impact | |
|
Suspend voting rights (already in Bill) AND Forced divestment (already in Bill) |
Maintains | Partially Maintains, as dividends may still be received before divestment takes place. |
Minor transactional costs: Bill suspends voting rights without intervention Shareholders will face costs involved in disposing of shares or ensuring they no longer have a relevant interest that takes them over 10% |
Will incentivise shareholders to ensure they do not have a relevant interest in shares or other classes of voting securities, greater than 10% | Benefits outweigh costs |
| Suspend voting and dividend rights (through SOP) | Maintains | Maintains | Minor transactional costs: Boards already need to consider which securities should receive dividends | Suspension of dividend rights, will incentivise shareholders to ensure they do not have a relevant interest in shares or other classes of voting securities, greater than 10%. Not suspending dividend rights no longer appropriate, given the focus on economic interests as well as voting control | Benefits outweigh costs |
