Westpac's decision to swap its New Zealand class shares for Australian ordinary shares is likely to slash dividends for 30,000 local shareholders, Macquarie Equities investment director Arthur Lim says.
Lim said the share exchange plan - telegraphed by the bank yesterday - could also effectively remove a top-10 company from
the stock exchange. The rationale for Westpac subsidiary Westpac (NZ) Investments issuing the New Zealand shares in 1999 was so the bank's Kiwi investors could get fully franked dividends.
Last year, local Westpac shareholders received total dividend payouts of 95.5c a share. Lim said if they had held Australian ordinary shares the payout would have been 64c a share because of a loss of imputation credits. New Zealanders' shareholdings will now effectively be taxed at 33 per cent twice.
Lim said the loss of full franking took away one of the major advantages for New Zealand Westpac investors. Furthermore, the switch to Australian shares would remove a $1 billion entity from NZX.
Westpac said as a consequence of changes to how Australian tax rules were applied to New Zealand class shares, it would be subject to Australian franking debits in relation to that share structure from July 1.
Chief executive Ann Sherry said the Australian Prudential Regulation Authority had classified the New Zealand shares as hybrids. There were capital and tax reasons for Westpac making the exchange and the bank had foreshadowed the move last September.
It was possible New Zealand imputation credits would continue to be attached to ordinary shares but the level of imputation credit might be "relatively low".
New Zealand shareholders would retain the option of having dividends paid in New Zealand dollars and the share exchange in July would be a straight one-for-one swap.
The last interim dividend to be fully imputed would be paid on July 1 and would be A49c a share - up 17 per cent. A supplementary dividend of A8.6c a New Zealand class share would be paid to non-New Zealand resident shareholders.
