Between the lines: NZ still bleeding its assets

By BRIAN FALLOW

The Overseas Investment Commission's figures for the second half of last year make depressing reading.

But not for the reason advanced by John Luxton, National's spokesman on inward investment.

He points to the decline from $3 billion worth of net investment approved in the first half of last year to less than $300 million in the second half as indicating a loss of confidence on the part of overseas investors in the policies of the Government.

The figures are especially surprising, Mr Luxton says, because of the low value of the dollar.

But the figures for the first half were swollen by the $5 billion sale of Fletcher Paper to Norske Skog. The buyout of the New Zealand minority shareholders in Fletcher Paper counts as "net investment" and accounts for most of the difference between the $900 million the commission initially reported for the first half last September and the revised $3 billion it records now that the terms of that deal are no longer confidential.

Now that Shell has secured Fletcher Energy, a similar boost will occur to the current half-year's figures, but it is unlikely that Mr Luxton will issue a press release lauding sound Government policies responsible for that turnaround in international investor sentiment.

What is dispiriting about the OIC figures is that they continue to chronicle the transfer of ownership of New Zealand assets abroad.

In the latest half-year, 91 per cent of the the $260 million of foreign investment approved consisted of agreement for Singapore Airlines to acquire 25 per cent of Air New Zealand, Credit Suisse First Boston to acquire 27 per cent of Fletcher Forests and the Commonwealth Bank to take out the 25 per cent of ASB it did not already own.

By contrast, the investment classified as greenfields is a meagre trickle - $22 million in the second half of last year and $26 million in the first half.

Indicators of portfolio investment tell a similar story.

Foreign holdings of New Zealand Government bonds and Treasury bills have halved over the past two years.

And a Deutsche Bank study found that the level of overseas ownership of New Zealand listed companies has been declining since 1996, from 61 per cent then to 54 per cent last year.

One other indicator of the way foreign investors feel about New Zealand has improved, however.

The balance of payments statistics break down how much of the collective profits of foreign controlled companies in New Zealand - and that is most of the big ones - is paid out in dividends and how much is ploughed back into the businesses which generated them.

In the mid-1990s as the current account deteriorated the Government spin was that the figures overstated the cash impact because most of the profits were being retained.

But we didn't hear that line much in the last term of the previous Government.

In the three years to September 1999, of the $10.6 billion earned by foreign-owned companies in New Zealand 95 per cent was paid out in dividends and only 5 per cent retained.

In the latest September year - the most recent figures available - the payout ratio had dropped to 70 per cent.