KEY POINTS:
Helen Clark's Government has wiped hundreds of millions of dollars off Auckland Airport's value in a vainglorious move to exert "local control" over an asset that passed into majority private ownership more than a decade ago.
Her Cabinet's decision to insert a new clause in the overseas investment
rules reserving control over unspecified "strategic infrastructure assets" to local owners while the Canada Pension Plan Investment Board's partial takeover bid is in play is a blatant abrogation of the shareholders' private property rights.
The upshot is that New Zealand's hard-won reputation as a "fair dealer" that welcomes foreign investment has now been carelessly hammered by a Government which is bent on milking the Auckland International Airport takeover for political advantage.
What Helen Clark and Finance Minister Michael Cullen forget as they blatantly ramp up the foreign investment bogey during election year is that the 50,000 retail shareholders in Auckland Airport also have votes.
Many of those mum and dad investors will already have taken a pasting on the value of their Telecom holdings after the Government wiped the company's effective broadband monopoly.
Shareholders will not be impressed if their subsequent ability to post a capital gain on their airport holding by selling into the CPPIB's partial takeover offer now comes to nought due to a retrospective Government intervention.
The Canadian fund has dug its toes in and will not withdraw its offer despite the widespread belief among market commentators that the two Cabinet Ministers who will assess the takeover will ultimately vote it down on the basis control will be transferred away from New Zealand.
CPPIB vice-president Graeme Bevans maintains the market view is wrong. The fund has tailored the takeover arrangements to ensure that it cannot vote its full 40 per cent stake during crucial airport board decisions - a move that adviser Grant Samuel believes takes it out of the majority shareholder category.
The fund could have claimed the Government's move was a "material change" to the foreign investment environment under which it launched its bid. But it has chosen to up the stakes by staying in and its gutsy decision may result in some unintended consequences.
The airport share price plummeted to below $2 at one point yesterday which meant that at one stage the Canadians' $3.6555 a share bid ($3.598 ex-dividend) was promising a 70 per cent premium to market prices.
The Government move - if leveraged well by the Canadians' advisers - may increase sentiment to the point that enough shareholders decide to sell into the offer just to make a point.
If the fund does achieve a 40 per cent acceptance level by the closing date of March 13, the Government will be placed in an invidious position.
Auckland Airport institutional investors - which include large international funds which provide much-needed capital for New Zealand blue chips - are also surprised at the Government's capricious decision to put a second roadblock in the way of the Canadian fund's bid for a 40 per cent stake in the airport.
Last week's retrospective decision by the Cabinet to block a tax loophole through which the Mounties would have been able to triple the expected returns was supported by Inland Revenue.
The Cabinet's decision was debatable given the Canadian bid had been in the market since mid-December and telegraphed at least two months earlier. Nevertheless the decision can still have been justified given the multi-million dollar leakage from the New Zealand tax base which would have ensued if the Canadian intention to use stapled securities had not been blocked.
But changing the overseas investment rules to make it difficult for the Canadian bid to succeed when the takeover offer has just 10 days left to run, not only shows blatant disregard for Auckland Airport shareholders' property rights but tells the world "you are not welcome here".
Auckland Airport has been "in play" since the beginning of 2007.
This has been plenty of time for the Government to have taken soundings on whether the foreign investment rules should be amended to create a new class of strategic infrastructure assets that should be kept under "local control", and legislated changes to the Overseas Investment Act.
The Government has not even provided an explanation as to why the airports and ports are now considered to fit into the "strategic asset" camp. Instead the Government has erected two roadblocks in the path of the Canadian fund's partial takeover bid on the dubious basis that the public are against the takeover.
That might be so from the point of view of the ratepayers for Auckland and Manukau cities. But the councils hold just 23 per cent of the airport. The major stake is owned by private shareholders who will make their own decision on the merits of the offer.
Successive Governments have boasted New Zealand has a level playing field which provides a fair environment where overseas investors are treated on the same level as domestic investors.
For a major debtor nation like ours, that was a reputation worth preserving. This doesn't mean the rules couldn't have been amended. But this should have been done by posting an explicit list of the strategic assets that the Government wants to "protect" from foreign investors and stipulating explicit foreign ownership thresholds.
