SOE privatisations will attract foreign institutions: AMP Capital

Turbines at Meridian Energy's West Wind wind farm at Makara, near Wellington. The Govt plans to float a minority stake in Meridian and the other state owned energy companies if it wins this year's election. Photo / Mark Mitchell

A partial float of the state-owned electricity generators would attract institutional and foreign investor support, especially if local investors had trouble digesting the size of the proposed floats, says AMP Capital Investors NZ head of equities Guy Elliffe.

Such floats could bring institutional investors out of the woodwork who've parked their cash in banks for the past couple of years, and want to seize the opportunity to squeeze bigger returns from the government-owned power companies.

Still, he said the ability for local investors to mop up the shares is the biggest issue of a government sale.

"Returns on government owned electricity generating companies appear low relative to the public listed company. The ability to enhance those returns would be an attraction to institutional shareholders," Elliffe told a media briefing in Wellington.

"There potentially could be a digestion problem for New Zealand investors, but there's not that many high quality renewable energy assets in the world, and I'm sure that those issues will bring international interest."

Last month, Prime Minister John Key indicated the government plans to sell-down its stake in the three electricity retailers, coal miner Solid Energy and national carrier Air New Zealand to just over half, in a bid to free up some $7.8 billion of cash tied up in the companies and repay some of the country's public debt.

The government was forced to ramp up debt in response to the global financial crisis, and faced a $15 billion cash deficit in the 2011 financial year alone.

Elliffe said the asset sales will perk up the market after "a dearth of capital raising activity - for me it's mainly positive that there's going to be a bit more enthusiasm for the market."

Merger and acquisition activity is probably facing a "fertile" year with the Fletcher Building bid for Australia's Crane Group and the Agria tilt at PGG Wrightson likely to lead to a "reasonable list by the end of the year," Elliffe said.

The AMP Capital team was reasonably upbeat about the prospects for the New Zealand economy, with rising global food prices likely to boost the nation's income, and eventually filter into consumer confidence.

Grant Hassell, head of fixed interest, said consumer spending was the last piece of the puzzle that needs to come right, with other economic indicators such as business confidence surveys showing a more optimistic outlook for New Zealand when the labour market and inbound migration bounce back.

"Deleveraging has slowed right down in the business sector. They've gone through and cleaned themselves out and got themselves in an orderly shape, and the consumer's doing exactly the same thing," Hassell said.

"There's lots of little things that are just going to continue to come through and provide that base from where we can grow."

He expects the official cash rate will start creeping back up in the second half of the year as the economy returns to good health.

AMP Capital, which manages more than $11 billion in New Zealand, still sees upside in global shares, and is slightly underweight in local equities. Sydney-based senior economist Bob Cunneen said he expects the kiwi dollar to trade in a range of between 74 US cents and 80 cents, though he wouldn't be surprised if it rises above that top end over the next couple of years.

The fund manager made a quarterly return on local equities of 4.8 per cent, lagging behind the 10.3 per cent gain in hedged international shares, but beating the 1.8 per cent growth in unhedged global stock markets.

AMP Capital made 4.1 per cent on Australian shares in the three months ended December 31, and an 8.9 per cent return from global property. New Zealand direct property grew 3.5 per cent, while local and international bonds reported a quarterly loss of 1.2 per cent. Cash returned 1.1 per cent in the period.