Sell down of SOEs good for NZ Inc, says strategist

Bernard Doyle. Photo / APN

The partial privatisation of state-owned enterprises will help rescue New Zealand capital markets from what it once described as a state of structural decline, JBWere says.

The Australian and New Zealand wealth management company said the Government's mixed ownership programme would represent "a significant step forward for NZ Inc".

JBWere strategist Bernard Doyle said the sharemarket's relevance had declined over the last decade or so.

Today, the market represents about 30 per cent of GDP compared with about 60 per cent in the mid-1990s.

In the decade ending in 2010, the annual average number of floats was four compared with eight in the previous decade, when the size of the floats tended to be bigger. Today's average market turnover is about $70 million - about the same as it was in 1997.

Over the comparable periods, average daily turnover on the ASX has gone from A$1 billion ($1.27 billion) to A$5 billion.

Doyle said a steady flow of new issues was important for the maintenance of a vibrant capital market.

"It's not to keep investment bankers happy, it's to keep up with the normal rate of attrition that you get with companies either being taken over [or] hitting the skids," Doyle said.

"In any market, not just New Zealand's, you need a flow of new companies to keep it fresh."

JBWere is 80.1 per cent owned by the Bank of New Zealand's owner National Australia Bank and 19.9 per cent by Goldman Sachs.

Fund managers expect to see strong interest in the mixed ownership companies - power generators Mighty River Power, Meridian and Genesis Energy and coal company Solid Energy.

The Government also intends to sell down its three-quarter stake in NZX-listed Air New Zealand.

"Our analysis suggests pent-up demand for quality equity offerings amongst local investors - with up to $5 billion of potential demand simply from a re-weighting of household assets back to mid-1990s levels of domestic equity ownership," Doyle said in a research note.

Public asset sell-downs generally had had a good track record for investors, he said.

Privatised companies such as Contact, Telecom, Auckland International Airport have gone on to become the backbone of the New Zealand sharemarket.

In 2010, JBWere said its concern was that the New Zealand equity market had become a poor vehicle for facilitating savings behaviour, and that the lack of initial public offers (IPOs), waning international investor interest and poor market liquidity were indicative of a market in structural decline.

Doyle said that if households expanded their proportion of equity ownership back to mid-90s levels, it would create $5 billion of new demand for equities.

"Without a partial sell-down of state-owned enterprises, the New Zealand equity market would probably continue to struggle for relevance and critical mass," he said.

"We view the introduction of the mixed ownership model as a significant step forward for NZ Inc."

The Treasury has estimated that extending the mixed ownership model to five companies would raise $5 billion to $7 billion.

First New Zealand Capital working with Credit Suisse Australia, Macquarie Capital New Zealand and Goldman Sachs New Zealand are the joint lead managers for this year's Mighty River Power sale, which is expected to happen in September.