Mark Solomon and Ngai Tahu have embraced the notion of investing in SOEs, writes Graeme Hunt.

Ngai Tahu is talking to the New Zealand Superannuation Fund about co-investing in infrastructure, ideally in state-owned enterprises the Government hopes to partially privatise if it wins a second term.

Such a partnership could provide sufficient liquidity to acquire cornerstone shareholdings in SOEs. It would also overcome the restriction on the Super Fund acquiring majority stakes in SOEs.

June McCabe, a former merchant banker and a member of the Maori Economic Development Taskforce, said there were many challenges to overcome to make iwi investment in SOEs a reality, not least "Maori conservatism".

Extensive investment by Ngai Tahu in SOEs - something Ngai Tahu chairman Mark Solomon is calling for - would require more technical support and a change in mindset. "The capital market model is not well-developed. We should develop a Maori model. We need to bring bankers and institutions into the room and show them how this model operates."

She said any Maori model would need to include Maori values. "How do you imbed Maori values into the organisation to drive future decision-making?" It was possible to speed up decision-making but "protocols and process" tended to dominate.

She said iwi seemed obsessed about investing in the Crown rather than setting up or participating in private investment structures. This meant they attracted undue public scrutiny.

"Some of us are saying let's set up a development fund but not call it that because everyone remembers the DFC ... Let's start with $100 million and through that you can grow to $300 million quite quickly.

Mark Solomon, a fellow member of the Maori Economic Development Taskforce, is committed to leading Ngai Tahu into public-private partnerships. He said in a keynote speech in May that Maori were a logical and enduring partner for the Crown in PPPs.

"Te Runanga o Ngai Tahu has a commercially focused business called Ngai Tahu Holdings Corporation. They look at and assess investment opportunities with some level of frequency," he told the Herald last month. We also have existing relationships with the Crown and are in dialogue with the National Infrastructure Unit. For these reason, when investment opportunities arise we will act or decide not to act on a case-by-case basis."

Solomon said he was confident Ngai Tahu could generate the cash needed to invest in PPPs or as a cornerstone investor in partially privatised SOEs.

"We have a low level of debt funding. We have capacity to raise funds if we determine that is necessary. We are looking to generate further cash from our existing portfolio that would assist with any of these potential opportunities, if we decide that is appropriate."

Back in May Solomon spelled out the iwi vision for investing in infrastructure.

"Perhaps on roads, water, health, and other strategic infrastructure. It is not impossible to imagine iwi as cornerstone shareholders in state-owned enterprises, making them state-iwi-owned enterprises," he said then. "It makes perfect sense if you think about it. Iwi will have the resources, we want our profits to stay in New Zealand - to reinvest for our people, for New Zealand Inc."

In June Solomon said Ngai Tahu and iwi katoa (all iwi together) were interested in the "whole gamut [of SOEs] from electricity production to transmission, to networking, to roads, to hospitals, to schools, to police stations". He told TVNZ's Q+A programme that whatever was available under infrastructure, "Ngai Tahu and iwi katoa want a slice".

Ngai Tahu already owns Crown properties. As part of its Treaty of Waitangi settlement process it bought assets such as the Christchurch and Queenstown courts and the Christchurch, Queenstown and Dunedin police stations. It is also involved in a 50:50 joint venture with Christchurch City Council, building the council's headquarters which it half-owns.

Solomon told Q+A he was impressed with what he had seen of private prison management in Australia, especially how it dealt with the cultural aspects of prison life.

The Maori sector has assets of at least $16.5 billion - Solomon estimates them at $20-25 billion - but many are property holdings which cannot be sold or generate cash for acquisitions.

Ngai Tahu Property, part of Ngai Tahu Holdings, is a major South Island urban and rural property owner, manager and developer with assets, according to its website, worth more than $450 million.

It has a right of refusal to acquire Crown properties.

Ngai Tahu has "talked the talk" more than most on prospective PPPs but other iwi, notably Waikato Tainui, and Maori incorporations and trusts had been quietly notching up commercial achievements, such as:

* Tuaropaki Trust, an amalgam of hapu northwest of Taupo, which had assets of more than $500 million through a diverse portfolio ranging from farming and horticulture to geothermal power generation, satellite communication and a mobile phone network; and

* Te Huarahi Tika Trust, which received spectrum allocation and a $5 million treaty settlement in 2000, was investing in partnerships with international telecommunications operators.

Tainui Group Holdings chief executive Mike Pohio says iwi would need more than a 5 per cent yield from long-term investment in infrastructure if they were to return benefits to tribes and the community over several generations.

"It is not realistic to expect that iwi would live with such a low yield," he said. "The issue for us is access to capital. The raising of equity is by traditional debt. Why would you borrow at 8 per cent where you accept a 5 per cent yield?"

He said iwi were part of New Zealand Inc and would not be going anywhere and their investment should be recognised in those terms. Infrastructure investment had a "great alignment" with iwi aims. "In that context, perhaps there is a premium New Zealand should be prepared to pay to retain New Zealand ownership."

Pohio said the keys to quality iwi investment were strategy, corporate governance and discipline - lessons Tainui had learned since the Treaty of Waitangi settlement in 1995. He said it was heartening Tainui was being approached with investment opportunities, not least to build a hotel at Auckland International Airport.

Tainui was prepared to work with other partners in projects of long-term tribal and community benefit, not with the government alone.

"I can envisage in 10 years we will be a rated entity with Standard & Poor's or Moody's."

Who Maori consider infrastructure a good investment fit
1. Investments with a long-term reliable yield
2. Ability to take part in the development and management of the vital assets that make up NZ's infrastructure base
3. Opportunity to contribute to the economic development of the nation