A loophole in the law covering partially privatised state assets will allow much more than 49 per cent of the value of the companies to be privatised, providing the extra shares do not carry voting rights.
The Government has pledged to retain 51 per cent of the four energy companies it has put on the block, starting with Mighty River Power later this year.
But a "minor policy decision" by ministers, revealed in a Cabinet paper released last week, shows that the 51 per cent limit, as well as the 10 per cent cap on individual shareholdings, will apply only to voting shares.
The Cabinet has agreed "the 10 per cent and 51 per cent restrictions should be calculated on the basis of voting rights rather than the total percentage of all securities held (including those with non-voting rights)".
The wording in the Mixed Ownership Model Bill, which has had its first reading in Parliament, would ensure control of the companies remains with the Government.
But it would not prevent the companies – with shareholding ministers' approval – issuing or selling non-voting shares, diluting the taxpayers' slice of the dividends and profits the companies generate.
It could also give the Government a way to avoid stumping up more capital for the partially privatised companies, which could instead raise it all from private shareholders.
A spokeswoman for SOE Minister Tony Ryall said voting rights were the best way to measure ownership, because it was the voting shareholding that determines the ability to control the companies.
She said that under current legislation SOEs could issue equity instruments such as equity bonds, "which do not carry voting rights but depending on the type can require a certain amount of repayment over the original investment".
But in their case an issue would require a resolution of the House – a safeguard not included in the draft law covering partially privatised companies.
Labour leader David Shearer said the "so-called minor policy decision" would allow National to sell more than half of the value the power companies generated.
"This has major implications because it potentially means the bulk of the future revenue could be lost to foreign and corporate investors who could own the dividend-collecting shares," he said.
In theory, there was no limit to how many non-voting shares could be issued and sold – diluting the Crown's dividends to a tiny proportion while meeting the Government's promise to retain 51 per cent of the voting rights.
"It is possible taxpayers could end up as owners in name only with just a fraction of the profits."
That could also undermine Treasury's forecast of predicted revenue.
"National should be honest with New Zealanders if this is what it intended and explain how it will now fulfil its promise that the majority of profits from these companies will remain in the control of Kiwis."
Mr Shearer said Mr Ryall's claim that it was already open to SOEs to issue equity bonds was just a distraction.
If SOEs did it, they were probably raising extra capital. Unless they were planning a massive expansion it would make little difference to the Government's stake.
But under the planned law, partially privatised companies could sell off their holding almost in its entirety.
Treasury officials yesterday said there were no non-voting equities listed on the New Zealand stock exchange, and they could not recall any SOEs issuing equity bonds or other equity-type instruments.
However, hybrid securities, which have a mixture of equity and debt characteristics but no voting or other ownership rights, had been issued by Genesis.
And in May 2010 Kiwibank issued non-voting preference shares that received a dividend.
- © Fairfax NZ News
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