Cathy Quinn: Let's keep the positive momentum going

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Cathy Quinn of Minter Ellison Rudd Watts. Photo / HBT
Cathy Quinn of Minter Ellison Rudd Watts. Photo / HBT

After a noticeably flat 2012 the Mergers and Acquisitions market is much busier this year. When you combine this with the Government-led and private sector IPOs, I think we're seeing the most buoyant capital market situation we've had for some time.

This renewed activity has given investors (including the all important retail investors and others who have being out of the market for some time), a renewed interest in New Zealand's capital markets.

There could be a concern that the recent IPOs and those currently under way might soak up all our capital leaving no room for new offerings. However I sense these offerings are creating the demand from the general public we've been waiting for. The high-profile advertising campaigns we have seen around the Mighty River Power float have no doubt generated awareness from investors who have had their savings in the bank or in their property.

It's really important in these circumstances - when mums and dads are looking at putting their toe back into the markets - that the offers that come out are from quality companies, doing real things with good growth stories.

To keep the positive momentum we need for New Zealand's growth we can't afford to allow fly-by-nighters to take capital from retail investors on a flimsy investment proposition - like we saw in the 1980s and in other periods since when the IPO market has opened for brief periods. The investment banking community, in particular, has a role in seeing that these sorts of bad eggs do not come to the market.

For my part, I don't buy that Kiwis don't invest in our capital markets because of a love affair with property. I think they have rationally turned to invest in property as a tangible asset in response to the all-too-frequent examples of ordinary people having a bad run with investment over different periods. If they haven't experienced it, they have certainly read about it happening to others. So if we want them to invest they need quality companies to invest in. The Mixed Ownership Model programme is part of providing for that need.

I have a concern about the signal the Labour-Green announcement (regarding changes to our electricity sector if they get elected) sends retail investors. That signal has made people looking at getting back into the market second-guess the security of their investment. The message was basically "invest at your own peril" as a future government might introduce regulation that could negatively impact on the company you invested in.

It doesn't inspire confidence to ordinary investors, and I think it reinforces their rational decision to stick to investing in property. Capital markets are already perceived to be risky and if there is a chance that the value of investments might be impacted negatively by politicians doing things for political reasons, they will keep their money in their homes.

The other possible negative of the Labour-Green's announcement is the signal it sends to offshore investors. The message being heard is that if you invest here you need to factor in that a new Government might make profound regulatory change that negatively impacts on your investment. Offshore investors want to invest in countries where they have confidence around the regulatory and political environment. The Auckland International Airport and Canadian pension fund debacle caused real concern to international investors at the time and for some years afterwards. I'm concerned the latest announcement might cause similar concern about how a future government might make changes that writes off millions on someone's investment.

In the past New Zealand has always had Foreign Direct Investment. Initially, this came from the UK, then Europe, the USA and Australia. However, now we see this coming predominantly from Australia and Asia. We have relied on foreigners for capital investment for many decades.

With the recent attention Asian investment has had in the media we need to remember that we need additional capital and we should not be fearful of it coming from offshore. The fact of the matter is that we are a small country with a small population. Even if our mums and dads put their hard earned savings back into capital markets, there simply isn't enough cash to go around. Some very good companies will continue to find it hard to get the attention of investors - and therefore to grow and expand their business.

In saying this, we should however try to be smart about foreign investment especially when it's investing in sectors which are sensitive to us. Let's try to encourage investment which not only creates jobs but sees value added activity occurring here in New Zealand. Let's encourage products to be made in New Zealand and then exported. Let's try and avoid the returns from these investments being fully exported and captured offshore.

We need to be wary of foreigners or New Zealanders who misuse New Zealand's clean, safe reputation in export markets. It is a valuable brand proposition we need to safeguard.

It will only take one bad egg and the brand damage would seriously hinder our economy for many years. Industry and government need to come up with solutions to that risk before a problem emerges.

Cathy Quinn is the Chair of Minter Ellison Rudd Watts. She leads the firm's M&A Practice, China Practice and is a member of the executive board of the New Zealand China Council.

- NZ Herald

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