No law stopping foreign investors buying assets

JOHN HARTEVELT AND KATE CHAPMAN
Last updated 05:00 16/12/2011

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No law will prevent foreign investors buying up shares in state-owned Mighty River Power when it goes on the block next year in the first of four part asset sales.

The Government yesterday announced Mighty River Power was "ready to go to the market" and up to 49 per cent would be floated on the NZX in the third quarter of next year.

Legislation allowing the float would include guarantees of 51 per cent government ownership and maximum 10 per cent shareholdings.

But there would be no legislated cap on foreign ownership.

Finance Minister Bill English said that was because the Government's intent was "very clear" with no more than 10 to 15 per cent of shares "expected" to go offshore.

"It would be a bit difficult to go into a sales process where you need a bit of flexibility with some kind of statutory bar in it," Mr English said.

"That could have quite an effect on the value taxpayers get. So we're happy to be judged by the result on the share allocation."

Limiting private ownership "theoretically" cut the value of the sales, but the Government wanted to keep majority control and give New Zealand investors "priority share allocations".

Cabinet papers released yesterday said the Treasury had already led a "significant amount of preparatory work" on the plan, including "comprehensive scoping study reports" by Deutsche Bank and Craigs Investment Partners.

Fees paid to consultants in the sales process are expected to add up to more than $100 million once the full sales programme is complete.

New Zealand First leader Winston Peters said that the vast majority of Kiwis opposed asset sales because the numbers "simply do not stack up" and there was "a big danger" that control of the country's energy systems would fall into foreign hands.

"All the share speculators and gamblers – National's friends – will be at the front of the queue," Mr Peters said.

"The shares will be sold into overseas hands in a matter of months."

The cabinet papers showed work led by Treasury had so found no "major impediments" to sales on the terms outlined by the Government, which included having Kiwi investors "at the front of the queue" and with "widespread and substantial New Zealand ownership".

However, SOEs Minister Tony Ryall said it would be March or April before it was known how Kiwi investors would get priority to shares.

"It's quite clear there are a range of options, from making sure there are guaranteed allocations for New Zealand investors through to whether you might have various incentives for people to hold shares for lengths of time," Mr Ryall said.

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Mr English said there was about $100 billion "sitting in term deposits," as well as cash in KiwiSaver, ACC, the New Zealand Super Fund and iwi investments.

Maori would be consulted in February next year on their interest in Mighty River Power and the three other energy companies lined up for part sale in the next three to five years.

The proceeds of all the part sales, estimated at between $5b and $7b, have been slated for capital investment in areas such as schools and an irrigation fund.

The value would be affected by market conditions, which were "a bit hard to anticipate", Mr English said.

"In the absence of very significant events they are likely to be reasonably positive because the demand for this kind of investment could well be greater when world share markets are a bit more volatile," Mr English said.

Labour's SOE spokesman, Clayton Cosgrove, said taxpayers would gain nothing from the sell down of Mighty River Power, which had been chosen as the National Government's "guinea pig".

'First dibs' for asset shares threatened

National's promise to give New Zealand investors first dibs on shares when state-owned assets are partially sold could contravene international agreements the country is signed up to.

Cabinet has agreed to go ahead with the partial sales provided there is "significant participation" of New Zealand investors.

But trade deals New Zealand is signed up to, including the Closer Economic Agreement with Australia and the Free Trade Agreement with China, require citizens of those countries to receive the same treatment as New Zealanders.

Victoria University lecturer Jason Young said it was uncharted territory and he had never heard of a similar situation.

"There'll be a lot of people that will be interested to know how it will play out," he said.

Dr Young is an expert on the FTA with China, but said the United States, Netherlands, Australia and United Kingdom all invested more heavily in New Zealand than China and would be watching developments closely.

Without knowing exactly how the Government planned to ensure New Zealand ownership of shares in the SOEs, it was difficult to say whether it would breach international agreements, he said.

Finance Minister Bill English said the Government had received advice which said it was possible to ensure New Zealand ownership without breaching trade agreements.

Allowing New Zealand investors to purchase shares before foreigners, or giving people incentive people to hold on to the shares for longer were possible options. Further details would be available in the new year.

- The Dominion Post

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