NZ Herald business editor at large

Liam Dann: Time to sell Kiwibank and NZ Post

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If New Zealanders want to maintain a state subsidised mail service for a few years yet then there are more efficient ways to do that than owning a courier business. Photo / File
If New Zealanders want to maintain a state subsidised mail service for a few years yet then there are more efficient ways to do that than owning a courier business. Photo / File

The time has come to split Kiwibank from its parent NZ Post and sell them both.

Kiwibank is ripe for partial privatisation. If the Government floated 49 per cent on the NZX it could net $750 million and deliver the company some much needed capital to grow and boost its profitability.

The Government believes in this model, having floated the power companies, and it has a shining example of success in Air New Zealand.

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Kiwibank was launched in 2002 to provide New Zealanders with a locally-owned alternative to the Australian banks.

It is a fantastic company, it has built a great brand and customer base but it needs to grow if it is to provide some serious competition to the big four.

By partially listing on the NZX it would stay New Zealand-owned and deliver the Government a tidy one off payment which could be used for infrastructure or social policy to stimulate the sluggish economy.

Kiwibank had full-year pre-tax earnings of $176 million in the year to June 30, 2015. The Aussie banks are currently trading on historically low multiples of about 11 times earnings.

Kiwibank might not have the institutional business but retail banking is where the growth is right now anyway.

On a conservative multiple of 9 times earnings it would be valued at $1.5 billion.

It is currently carried on Government accounts at a book value of $1 billion so allowing for a good growth post listing, $1.5 billion doesn't seem unreasonable.

A float would also provide another good shot in the arm for our capital market.

And of course as profits grow the dividend back to Government - even with a 51 per cent stake - could eventually rival and surpass the dividend it now receives at 100 per cent.

If New Zealanders want to maintain a state subsidised mail service for a few years yet then there are more efficient ways to do that than owning a courier business.

This should all be a no brainer for Bill English and John Key. Though it would involve another political scrap, it is one that they could win.

NZ Post is politically more difficult and splitting Kiwibank out of the business would leave it vulnerable.

To make the split work the Government needs to really bite the political bullet and sell NZ Post too.

As evidenced by the latest large scale job cuts, the business is facing disruption a scale that threatens its very future. The business of letters is dying fast and the business of parcels is already fragmented and highly competitive.

It should be sold completely, while it is still worth something. Its best long-term option is to be part of an industry consolidation and taken over by a bigger freight and logistics company.

It isn't hard to imagine the "uberisation" of a deregulated mail market offering consumers an adequate service.

If New Zealanders want to maintain a state-subsidised mail service for a few years yet then there are more efficient ways to do that than owning a courier business.

Residential mail services could be outsourced to private players and subsidised in unprofitable regions to whatever degree deemed politically appropriate.

Meanwhile, state subsidy of business mail makes no sense in this day and age, it's hard to see a political argument for its retention.

The demise of post as a core public service will be historic and bemoaned by many. But its time has come. Technology and competition have rendered it redundant and there are many better places to spend taxpayer dollars - whether you believe that should be schools and hospitals, or roads and tax cuts.

Debate on this article is now closed.

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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