Fran O'Sullivan: A touch of English reserve

Will the Government press on with IPOs in the wake of Mighty River Power?

'We're starting to see the benefits of stable and consistent policy' - Bill English. Photo / NZH
'We're starting to see the benefits of stable and consistent policy' - Bill English. Photo / NZH

New Zealand is firmly back on the international radar screen with offshore investors keen to snap up a stake in Mighty River Power to add to their Fonterra fund holdings..

But the big question on the lips of both on and offshore investors, is whether the Government will press ahead with the next power company IPOs - Meridian Energy and Genesis Energy - while international confidence in New Zealand is high and liquidity remains reasonably strong.

Finance Minister Bill English is not going to give the game away until after Mighty River Power lists on Friday. He says the decision will be based on which asset will realise the best value "relative to the objectives we set ourselves".

English believes the offshore interest is sparked by a combination of the assets that are slated to be listed in the Government's IPO programme and a "more healthy economy".

"We're starting to see the benefits of stable and consistent policy," he adds. "It's been the same story for three or four years - we've just got to keep at it."

Leading players like First NZ Capital managing director Scott St John and Craigs Investment Partners managing director Frank Aldridge agree.

But adds St John, "New Zealand needs to stack up on the relative and absolute basis because cash can go anywhere. It's also a contest, we've got to ensure what we offer is competitive."

St John indicates international investors take quite a bit of comfort from the level of fiscal responsibility the Government has exercised over the last few years.

But he notes that though there have been "a few wobbles" in the financial markets regulatory space, there is recognition that has changed. "Everyone has to know the rules, so we can have a clean game."

"It is important that policies are clear so the capital can be raised efficiently."

Aldridge says the past 12 months have been a relatively buoyant time for the NZ capital markets.

The MRP float has been a signal that NZ's capital markets are open.

But he says the increased appetite on the domestic front for investing in New Zealand equities has been driven by a number of factors, not least the low rates investors have been getting on bank term deposits.

"The MRP float is very important to the whole mixed ownership programme," he adds.

First NZ Capital is co-lead manager of the Mighty River Power float and Craigs is one of the two leading retail brokerage houses for the float.

Craigs' David McCallum says a major lack of supply (driven by a number of factors including the fact that balance sheets are in good shape, there has not been a large amount of M&A activity, and lack of borrowing generally) also means the banks are competing strongly among themselves, leading to a sharp lowering in lending margins.

He says this makes debt capital markets less competitive. "It does mean any corporates that do come to the market can be expected to be well-supported."

McCallum notes that at a retail level the absence of issuance means there has been some focus on high-yielding defensive stocks, and bank term deposits also look attractive.

He says Craigs expects issuance conditions continuing to be supportive as the large deals that were done after the Global Financial Crisis mature. The firm predicts retail maturities of more than $2 billion a year for the next four years, and total market (ex Kauri) will be averaging $6 billion annually.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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