KEY POINTS:
Mum-and-dad investors have never been slow off the mark when invited to benefit from the steady income and strong long-term returns of fully or partly privatised utility companies. Their keenness has reinforced the inescapable logic of a shareholding democracy. The pluses extend far beyond investors' wallets to improved
company performance, government coffers and economic growth, and a more robust stock exchange. Notwithstanding this, the concept has been moribund since 1999 when the Labour-led Government stopped the sale of state-owned enterprises. It endures, however, because of its sheer attractiveness and success overseas.
The latest manifestation came this week in a speech to a law conference by Wellington investment banker Rob Cameron, one of the architects of the state-owned enterprise model. He wants large government-owned businesses such as Meridian, Genesis Energy and Solid Energy partially privatised and their governance structures overhauled. This would be achieved by the issuing and listing of non-voting shares in state-owned enterprises, involving a minimum $100 million in equity or up to 10 per cent of the company's value.
The structure is far from optimum. Ten per cent equates to a toe-dipping exercise; a figure closer to 49 per cent would make far more sense. Likewise, the non-voting aspect is novel. People who invest in an enterprise expect, quite naturally, to have some say, however minor, in its operation.
But this format is all about Mr Cameron trying to come up with something that is acceptable in an anti-privatisation environment. Non-voting shares negate the possibility of a large shareholder, possibly from overseas, exercising control, thereby ensuring that Crown ownership is not compromised. Mr Cameron is betting, also, on the absence of voting power being of no particular concern to mum-and-dad investors, whose major interest lies in a stable returns stream.
Any structure that exposes state-owned enterprises to the disciplines and measurement of the market, and improves their access to capital and financial flexibility, is welcome. But it is appropriate at the moment, given the Government sees state-owned enterprises as drivers of its economic transformation agenda, and has instructed them to consider diversifying. Greater market scrutiny, and more direct monitoring, provides a greater chance this process will be well managed.
As much as anything, however, the listing of state-owned enterprises, or their subsidiaries, would be a much-needed fillip for the New Zealand Stock Exchange. Despite many initiatives, its size and scope has suffered from the ongoing drain of companies from its board, orchestrated in large part by international private-equity investors. It requires an injection of fresh blood. The presence of partially privatised state-owned enterprises would generate renewed investor interest in its activities. It would also help to draw attention from the current unhealthy and non-productive obsession with housing. Offerings for shares in the likes of Vector and Auckland International Airport have demonstrated a strong ongoing appetite for blue-chip utility stocks.
There will, inevitably, be teething troubles with the structure suggested by Mr Cameron. Or, indeed, with any format, given the strange hybrid that is the state-owned enterprise. Governance responsibilities between ministers and boards would, for example, have to be ironed out. But such is the compelling nature of the concept that its time must surely come. An unveiling in Michael Cullen's May 17 Budget would be appropriate.