A strong economy is boosting interest in NZ assets, as ASB's Henry Withers tells Bill Bennett.

After a significant, extended boom riding the back of high commodity prices Australia's economy has now slowed.

Henry Withers, ASB general manager corporate banking, says that as a result, a rebalancing between the Australian and New Zealand economies is under way that is leading to an increase of trans-Tasman investor interest in New Zealand assets.

"Our economy is stronger than Australia's at the moment. We're seeing better relative GDP growth, here forecast GDP growth is 3 per cent compared with 2.4 per cent in Australia.

"In part this is because Australia's resource boom slowed, but there are other factors in play including stable and solid economic policies from our Government. We've also put a lot of hard work into creating a more robust capital market framework and that's paying off with both international and local investors.


"There are some good capital market initiatives and a relatively high number of IPOs coming to market. That was started by the Government's partial asset sales which put New Zealand on the international stage from a capital markets perspective".

All this has added up to Australians taking a fresh look across the Tasman and being impressed by what they see.

It's not just Australians. Withers says New Zealand's "rock star economy" was a headline that went around the world. "That was off the back of our free trade agreements and the realisation there is a increasing demand for protein from Asia's fast-growing middle classes. We have a good soft-commodity story."

We're seeing a resurgence in companies wanting to invest in Australia - they have strong balance sheets and they're looking across the ditch and making strategic acquisitions buying businesses in order to expand into the larger market.

This is about the long term. Withers says from the bank's point of view the current softening in the dairy price is just cyclical and the ASB believes that over the medium to long term demand for New Zealand products will remain strong. "We're confident about the earnings potential for New Zealand".

That earnings potential is already reflected in local equity markets. The New Zealand market has edged back from its peak, but is still relatively close to its all-time high.

There's also more confidence about the NZX thanks in part to government regulations with better oversight and greater transparency of the market. Withers says the Capital Markets Task Force did a great job: "The regulatory framework around our capital markets is world class.

"We've outperformed the major indices and that includes the ASX. Two things are driving that: There's a lot of capital coming in from Kiwisaver funds, that's being deployed locally and there's money from international investors. They're looking for growth and New Zealand is one of the few places that has the positive growth outlook they want."

International investors have noticed how New Zealand has been relatively untouched by the world events over the past decade and how the market here is largely insulated from Europe. We're also seen as being part of the growth that's taking place in Asia.


"Also you're seeing some really good businesses coming through, raising capital and listing on the New Zealand stock exchange," adds Withers. "The earning profile of New Zealand corporates has been very strong compared with companies in Europe or elsewhere."

"Over the last 12 months there have been 17 IPOs -- that's the highest number since 2004 -- with successful new businesses like Vista, eRoad and Evolve. In addition there are larger opportunities like Genesis Energy."

Withers says the New Zealand IPOs are attracting overseas capital. The Evolve early childcare and education group attracted more than $130 million late last year, 70 per cent from international investors.

ASB expects to see more IPOs come to market over the next year, however Withers says there will be more of a focus on quality and yield. "The NZX has seen a move from institutional and domestic investors towards more defensive, high yielding stocks. Investors are becoming more cautious about the assets they are holding for the long term."

When it comes to Australia, Withers says New Zealand capital markets are holding their own against the much larger market across the Tasman. This is having an impact on trans-Tasman mergers and acquisitions, in public and private markets.

Merger and acquisition activity has been steady in recent years. There were 442 transactions in the past 12 months compared with 452 in the previous year. The ASB anticipates an increase in M&A activity over the next 12 months that Withers says will drive further demand for capital.

The attractiveness of potential earnings growth in local companies compared with their Australian counterparts means money is flowing as investors look for New Zealand assets. Withers points to the recent private equity transaction where Champ Ventures invested in New Zealand's largest truck rental and leasing business, TR Group. Another example is Crescent Capital acquiring Prime Panels.

He says this is also working in the opposite direction with New Zealand corporates taking advantage of the purchasing power that comes with a strong dollar and lower company valuation multiples in Australia. "There's now a big gap between valuations in New Zealand and Australia. We're seeing a resurgence in companies wanting to invest in the Australian market.

"They have strong balance sheets and they're looking across the ditch and making strategic acquisitions, buying businesses in order to expand into the larger market."

Withers says companies are looking to ASB to help them find the money to grow either locally or in Australia.

"They're going where the opportunities are. Organic growth is happening, but a lot of firms have strong balance sheets and cash flows. That gives them the option of looking for growth through acquisition. They are looking for complimentary businesses either locally or to move into the Australian market".

The demand for business capital is unlikely to diminish in coming years. Up to one-third of privately owned New Zealand companies face succession issues as older owner-operators look to retirement. Withers says there's a backlog because owners shelved plans during the global financial slowdown. Now they are looking for ways to get out -- and that requires capital.