Malcolm McPhee: Investment culture in need of care

Malcolm McPhee

Opinion

Success for Auckland Regional Holdings in its takeover bid for Ports of Auckland will be a sad day for the investment market.

It will remove a significant first-class investment option for New Zealanders at a time the Government says they should save more and invest beyond houses and property - especially in New Zealand.

It is a pretty safe bet that a lot of the almost $170 million payout to Ports of Auckland shareholders from ARH success will be exported.

Despite less favourable tax treatment overseas, the investment attractions of the Australian market alone - 17 times the size of ours - are compelling, especially with the kiwi dollar exchange rate so strong. London is another major magnet.

Some say the $8 a share being offered by ARH is rich or fair given the ports' activity future. But is it?

The ARH directors, answering to the rates-slugging local politician shareholders of the Auckland Regional Council, are clearly targeting the port company's land bank. There has been no market contest to determine the worth, not the valuation, of the land bank, a collection of properties open to more than one definition.

If the Auckland Regional Council and its ARH offshoot want the land bank, why not offer to buy it, or as much of it as needed, at long-term market price? They could well get 80 per cent of the cost back through their share of a distribution of the proceeds by Ports of Auckland to shareholders.

For all that the ARH directors can argue to be acting with prudent governance of their company's interests, it is not difficult to see the ARH offer looking like something else:

* Minority ports company shareholders being short-changed for their direct share of the land bank.

* Regional ratepayers being lumbered with the cost - perhaps borrowing cost - of almost $170 million while being denied the benefit of investing that to greater advantage in roads and other infrastructure that the ARC is supposed to be providing through the Auckland Regional Services Trust aka Infrastructure Auckland aka ARH.

Where are the ARC' s cost-benefit analyses?

Take a long view of another regional asset - the ASB Bank. When the trustee bank era was ending, efforts were made to float part of it on the sharemarket. However, the ASB Community Trust, blessed with ownership of the bank, sold 75 per cent of it to the Commonwealth Bank of Australia in 1989 and put the $252 million raised into the ASB Charitable Trust.

The trustees of the ASB trusts did a great job prudently diversifying assets while the 25 per cent remaining stake in the ASB Bank, in which they shared directorship, grew into a blue-chip investment.

A decade later, in 2000, the last 25 per cent of ASB was sold to the Commonwealth Bank for $560 million - more than double the $252 million it paid for 75 per cent.

While there is more to that story than a simple sale, it is a sad fact that, for all the charity dispensed, Auckland and New Zealand savers were denied a chance to invest even a little directly in ASB.

Take another peek at the value in long views. When the last piece of ASB was sold to the CBA, the ASB's after-tax profit was about $150 million - it was nearly $317 million in the June 2004 year. What price 25 per cent now?

The CBA has been a good shareholder-owner, but beyond that the ASB's own good management has been a powerful factor.

Sadly, in times past too much emphasis in New Zealand has been put on trade sales of assets based on the argument that you get more from someone prepared to take full ownership. Full ownership can work, leading to the often talked about sale of the family silver when it does.

But time and again not enough weight has been given to encouraging New Zealanders to believe in home-grown enterprises and to save and invest in them. It is no use preaching the need to save if you don't help to produce places in which to invest, like the ASB and Ports of Auckland.

Take the case of the ASB's parent, the Commonwealth Bank. The Australian Government listed it in 1991 at $4.50 a share, with the Government retaining a 70 per cent stake. The Government sold down to 50.1 per cent in 1993 and sold out in 1996. Today you must fork out A$35 to buy one CBA share to benefit from the ASB's growth.

By taking such views with government design and participation, Australia has built a market that one analyst reckons is the eighth largest in the world, with its 1588 listings capitalised at more than NZ$1 trillion.

Local governments and national governments on this side of the Tasman look to narrow, short political agendas and cling to full asset ownership - or dump them, avoiding partnership investments with local citizens.

The last sharemarket listing loss was the messy departure of Powerco. As with the CBA and the ASB, you now have to invest through Australia's Prime Infrastructure to share in Powerco's enterprise.

And for all the talk of building a transtasman economy, you have something of a snowball's chance of getting all the tax imputation credits - franking credits in Australian parlance - attached to those dividends.

While New Zealanders can feel like second-class investors in Australia, even in companies with major profit-making New Zealand operations, the Minister of Finance apparently seems more intent on surrendering sovereignty of bank regulation here, including that over a couple of banks that aren't Australia-based, by taking oversight from a perfectly good Reserve Bank of New Zealand and giving it to a regulator working under law designed by Australians.

That may help to make a single Tasman market, but New Zealand more than ever will look like an Australian banking colony.

Appearances matter: they can determine behaviour, not least that of investors. The New Zealand investment savings culture is in need of a bit of tender loving care.
* Malcolm McPhee is a former Herald business editor.