Stock takes: Australia's super plan loses some of its lustre

While we in New Zealand might look at Australia's 17-year-old compulsory superannuation regime with some envy, especially when the cash was fuelling the buy-up of some of our best businesses, the credit crunch has prompted at least some doubts as to its frame-work.

Australian journalist Alan Kohler wrote this week that rather than legislating for employers to hand over 9 per cent of all salaries to be invested by private sector funds, the Australian Tax Office should have instead collected the money and passed it to a central government fund, a little bit like its own Future Fund or our "Cullen" fund for investment.

Why? Kohler argues that direct private sector management of the cash has "led to the excesses in wealth management and financial planning" as well as an "unsustainable boom in share prices that has since burst".

Gosh, that last bit sounds suspiciously like what the NZ Super Fund has warned of when asked why it doesn't invest more in local stocks.

It has to be pointed out that while sovereign wealth funds like our Super Fund and Australia's Future Fund are overseen by public sector employees at a high level, they employ private sector fund managers to manage their cash.

Nevertheless Kohler believes insufficient care was taken in regulating what was done with Australian superannuation cash "and so a lot of it was wasted on fees or lost on poor investments".

KiwiSaver here in New Zealand is seen by many as a precursor to compulsory super savings which some argue should have been adopted years ago. While we might be slow out of the blocks on this, we at least have the opportunity to learn what does and doesn't work from the Australian scheme.

Here's hoping we don't overlook what Kohler calls "one of the tougher lessons of our recent history" or that the managers of fledgling KiwiSaver funds don't give us the same causes for concern he highlights.

AN AMPLE SUFFICIENCY

AMP Capital Investors head of NZ equities Guy Elliffe this week said his firm was welcoming recent capital raisings as a golden opportunity to invest in good New Zealand companies at what appeared to be bargain basement prices.

Critics have pointed out that placements to institutional investors, which are at present the favoured capital raising option, have the potential to dilute smaller investors. That is recognised and somewhat mitigated in these offers' additional share placement plans and top-ups.

Stock Takes has been told that the investment banking firms who manage these issues make an effort to maintain some semblance of a pro rata allocation of new shares to institutions. But we also understand they have and do exercise a fair amount of discretion as to who they offer shares to and how many.

And why wouldn't you go the extra distance for New Zealand's largest private sector fund manager?

Ahead of the adjustments that will take place once relevant share purchase plans and or top offers have been completed, AMP has clearly extended its ownership of Fletcher Building and Freightways as a result of the placements as recent substantial shareholder notices show. And it has ended up with a bigger stake in Nuplex following that company's rights issue.

Its purchase of 6.2 million new shares in Fletcher Building saw its stake rise from 4.77 per cent to 5.21 per cent. It snagged 4.5 million of the 18.5 million new Freightways shares issued to take its stake from 4.46 per cent before the placement to 6.95 per cent and in the Nuplex rights issue it has moved from 5.36 per cent to 8.3 per cent.

At the stated issue prices for the new shares, AMP has spent more than $50 million in these capital raisings, including $33 million on the Fletcher Building issue.

This is what it this week called "gradually increasing exposure to equities".

AMP and other institutions that have participated in the placements are already well in the money, closing at $6.70 yesterday. Fletcher Building shares are now trading 25 per cent above the issue price. Freightways shares at $2.90 are 19 per cent ahead, and Nuplex at 36c is 56 per cent ahead.

WEALTH REWARDED

Speaking of the Fletcher Building capital raising, the company yesterday effectively increased the size of its issue by $20 million, taking advantage of recent NZX listing rule changes to ensure there would be shares left over in its Top-Up offer.

While its Share Placement Plan should effectively give your mums and dads the opportunity the offset the dilution suffered under the institutional placement, the Top-Up is intended to give those investors whose holdings fall somewhere between those held by the big end of town and the small retail stakes. In Fletcher Building's own words, this is the "wealthy" or "experienced" investor.

The listing rule change Fletcher Building is taking advantage of lifts the maximum amount of a company's capital that can be placed within a 12-month period from 15 to 20 per cent.

OCR AOK FOR THE NZX

Reserve Bank Governor Allan Bollard has set the official cash rates at a historical low and boldly stated that is where they'll be for the next 18 months or so.

The sharemarket appeared to welcome the news, with the NZX50 at one point gaining more than 2 per cent yesterday before closing 1.5 per cent higher - although it was helped by positive sentiment from Wall St.

The dollar's US1c fall in reaction to the announcement is a positive for exporters and also makes our stocks cheaper for offshore buyers.

Meanwhile, First NZ research manager Barry Lindsay observed the RBNZ's call will also be a fillip for the considerable number of corporates planning to issue debt in what has already been a bumper year for bond issuance.

While a number of commentators believe the rates being offered in many recent issues have been a little on the low side when compared to offshore yields, they still look attractive to many punters when compared to bank deposit rates. Yesterday's OCR cut will only reinforce that appeal and help companies raise the funds they're seeking, says Lindsay.

WHAT'S COOKING?

Late last week Stock Takes was intrigued to see Allan Hubbard's South Canterbury Finance facilitate the resolution of the beef between PGG Wrightson and Silver Fern Farms over last year's failed merger proposal.

Funding provided by South Canterbury allows Wrightson to pay Silver Fern $25 million and issue 10 million ordinary shares to it.

South Canterbury has the right to convert all or part of the amount drawn down by Wrightson into shares in the company in a deal that apparently was put together with a great deal of input from Hubbard himself.

What makes this so interesting is that market speculation reached our ears several weeks ago that some kind of involvement by South Canterbury in PGG Wrightson's trammelled affairs was in the offing. The talk was that the eventual outcome would be some kind of tie-up between South Canterbury and PGG Wrightson's parent Pyne Gould Corporation, resulting in a hefty South Island and rural focused registered bank. Pyne Gould has already said it

will seek a banking licence. We went to Pyne Gould's chief executive Brian Jolliffe with this speculation several weeks ago but Jolliffe laughed it off. In the end we decided the speculation was too spurious - even by Stock Takes' standards. It's not so unlikely sounding now though.

CART BEFORE HORSE

A minor aside to the PGG Wrightson/Silver Fern Farms announcement is that it was released by the companies' media minders late last Friday after the market closed and wasn't announced to the market until Monday morning.

Tsk tsk! Not only is this material information for listed PGG Wrightson, Silver Fern Farms also has debt listed on the NZDX and its interim result along with plans for a share issue was also contained in accompanying material.

This stuff is supposed to be released to the market first, not to the media.