By Bernard Hickey
Finance Minister Bill English has reassured Kiwibank depositors that the current New Zealand Post guarantee of Kiwibank would be replaced by a direct Government capital facility to protect the bank in the event of any stress.
His comments followed the announcement earlier today of New Zealand Post's plans to sell 45% of the Kiwi Group Holdings, which owns Kiwibank, Kiwi Insurance and Kiwi Wealth Management, for NZ$495 million to ACC and the New Zealand Superannuation Fund. The deal will be associated with the removal of NZ Post's guarantee behind depositors of Kiwibank, which is expected to trigger a one notch downgrade in Kiwibank's credit rating to single A from A+. The other big four Australian-owned banks have AA- credit ratings.
English also said he expected New Zealand Post to maintain its 55% shareholding, even if ACC and the NZ Super Fund choose to invest more capital to further growth Kiwibank. He said the Government expected NZ Post to pay dividends in future, but that the Government had not ruled out putting more capital into Kiwibank through New Zealand Post if ACC and NZ Super judged that the was the best way to grow the value of the bank.
English welcomed the addition of the new shareholders, which he said would add commercial acumen to Kiwibank's board and give it avenues for funding its growth.
English said the removal of the New Zealand Post guarantee was not a major issue, and would be replaced anyway by a direct Government facility.
"The guarantee was not a strong one in that you had an entity worth a NZ$1 billion guaranteeing NZ$17 billion of banking assets," English said when asked about the New Zealand Post guarantee being removed.
"It wasn't really an effective guarantee, but now that's been replaced by an arrangement where the Government underwrites any capital requirements related to the bank coming under pressure," he said.
"That's yet to be finalised in detail, but there'll be a capital facility there so that depositors know that if anything went wrong with Kiwibank then the Government is able to stand behind it," he said.
"It's a capital facility. It's not like a deposit guarantee because in New Zealand we don't have deposit guarantees, but it is a facility that Kiwibank can call on if in extreme circumstances it needed to repair its capitalisation," he said.
He compared it to the support the Australian-owned banks, ASB, ANZ, BNZ and Westpac, have from their Australian parents CBA, ANZ, NAB and Westpac.
"In the GFC the Australian parent banks stood behind the New Zealand banks. Kiwibank is a well capitalised bank. It meets all the regulatory requirements. It's a stronger bank than it was six or seven years ago during the GFC, it's well regulated and there's been no issues arising out of this transaction that would give the shareholder cause for concern at all. It's in fine shape," English said.
He agreed that depositors could be more confident in Kiwibank than the bankers who lent money to Solid Energy. Those banks received haircuts on their loans when Solid Energy collapsed.
Facility worth NZ$300 million
Later on Wednesday Kiwi Capital Funding's Head of Capital Geoff Martin said in a statement to the NZX that the Government already provided New Zealand Post with an uncalled capital facility that it " is able to utilise in order to support Kiwibank's capital and liquidity positions in certain circumstances."
Martin said if the deal proposed this morning proceeded then that facility would be replaced with a new uncalled facility whereby Kiwi Group Holdings (KGHL) would issue the Crown with NZ$300 million worth of uncalled convertible redeemable preference shares. KGHL would in turn Kiwibank with a corresponding NZ$300 million facility. This facility would have an initial term of 10 years, after which the Crown could terminate the facility with 5 years notice.
If any of the redeemable preference shares were converted, "one share issued to the Crown will be a "Golden Share" and will carry sufficient voting rights to ensure that the Crown will always, collectively with all other ordinary voting shares held by the Crown, carry a requisite super majority vote for all (ordinary and special) resolutions."
See more here on the previous capital facility by Gareth Vaughan from September 2011.
'No plans for dilution'
English reiterated earlier comments in a statement that the Government was determined to keep 100% ownership of Kiwibank within the wider Government balance sheet.
"It's 100% Government ownership and we've been very specific about that. It's essentially a transfer within the Government's balance sheet that will give benefits to Kiwibank with more commercial owners and access to capital," he said.
"NZ Post needs to pay down debt. They've got their own pressures for change and we want to make sure they're a viable organisation and that we'll get a dividend out of the transaction, but it's unclear what that is," he said.
He said it would be up to the board of New Zealand Post if it wanted to reinvest dividends from Kiwibank and/or inject fresh capital to fund growth.
"To the extent that NZ Post needs to participate (in any capital raising), that will be discussed with us. It will take them a while to settle down and make those decisions," he said.
"We would expect that the change in the ownership structure would mean it's easier for them to get access to capital to grow. They'll be making commercial decisions that will probably push them in the direction of growth and you've got a couple of significant Government owned investors who have the ability to find that capital," he said.
"We'll be expecting dividends from New Zealand Post. As I understand it, there are discussions going on between the respective shareholders about dividend reinvestment policies and so on."
English said he did not expect to see a significant change in the proportion of New Zealand Post ownership.
"If those shareholders decide to put more money in in a way that requires NZ Post to retain its shareholding, then the Government may be putting more capital in. We wouldn't rule that out," he said.
"We would expect to maintain those proportions for the foreseeable future," he said when asked about whether NZ Post's 55% ownership could be diluted by not contributing capital when ACC and NZ Super did.
English said the idea was first floated around 18 months ago and was not at the direction of the Government.
14 Comments
We still are paying more shareholder if what they invest in are entities that get the profits from.........NZ taxpayers! It's just a stupid round about way of getting it. Like I said before, for us taxpayers it's a case of buying into the business through no choice of our own and then buying the products as well. Own goal they call it.
Btw, you know what ACC have in surplus right now? Pretty sure it's around the $15 billion mark so our levies should be going done regardless without the new H&S Act which will only finance more lawyers and insurance brokers
Yes, but .....is that the case?or is it nothing more than another form of stealth tax? is that guaranteed or in writing? Is that "binding"? I remember not long ago politicians claiming the selling shares in power companies would go to build "schools and hospitals".. Well....did it? Can we have an audit now please?
I want my ACC levies to go to what I hand them over for. This aint it! I don't want my ACC levies being invested in property speculation ( happening now) or my Super Fund tax contributions being gambled on the Stockmarket (happening now)
It's wrong and it's unethical without a real public mandate. These are the kinds of issues we need to go Switzerland on (CBR's)
This sort of thing worries me. If/when share prices plummet, there will be all sorts of immediate and delayed effects compounding upon each other. eg Kiwisaver balances reducing/ ACC net worth dropping requiring future hikes to ACC levies, Cullen Fund net worth dropping requiring higher future taxs. ALL at the wrong moment. If that coincides with property values dropping then there may be OBR term deposit forced reductions, possibly bank bailouts. Higher unemployment: increased dole payments.
Sooner or later the public/ tax payers are affected by all of these things.
that's exactly what happened during the GFC, ACC investments plummeted in value and national ran around telling the shepple that labour had stuffed it up and put the levies up to cover the "shortfall"
then the markets roared away and a couple of years later the reduction in levies because they had covered the shortfall.
biggest snowjob ever but most fell for it as they don't understand what happens with there levies
why are we paying levies at al if ACC is worth 32 Bill? because they have to cover liabilities for many many years so need to invest and grow the money pool so we don't have to fully fund from our taxes
Who do you think the government get the interest money from to pay anyone investing in NZ bonds? That 2% interest comes from you and me in the form of taxes & levies. What's our nations debt? Taxes are never going down sharetrader. Governments take, they never give. We the 'people' do the giving. Even Kiwisaver for example. Where the hell did people think the government contributions came from? let alone employers being forced to pay in and then people wonder why their wages go no where for years. It's false economy stuff.
I want every god damn cent I pay in taxes and levies to go back to serving the community, giving people healthcare and the operations they need etc, without the waiting lists and jumping through bureaucratic hoops. If I can make sure YOU get these things then I pretty much guarantee I will also if I should need it. That's the point of paying taxes and levies. They are not bottomless pits for MP's and bureaucrats to go gambling, speculating, and playing SOE jenga with.
agree that governments waste tax,
as for your kiwisaver most is invested overseas and the income is taxed so after a certain period that tax take will be far greater than any government rebate, same with NZ super and ACC they both invest 80% + overseas and the tax from the income (which is from overseas) goes into the governments coffers.
if Muldoon had left the super alone years ago NZ would have been one of the richest countries in the world as the income generated offshore would by now most likely have been enormous if other politicians had also left it alone.
the countries that are doing well have funds like our superfund that generate returns offshore for the future generations like Singapore or Norway. we are stuck in a three year cycle i.e how do I get elected again
http://www.nbim.no/
This is a totally inappropriate investment for ACC, and the Superfund. Bank capital is the riskiest form of investment. The government and rbnz would have so many conflicts here you wouldn't know Arthur from Martha. I am very happy for the government to pump in capital here directly, just not through these investment vehicles
no, all producing assets should be moved away from government manipulation and put into a vehicle to produce money to pass over to the government to pay for the services we need ala what Singapore has done with temasek
Interesting reading some more of the details in the Herald this morning. As I understand what is reported, it appears that:
1 Sale to ACC and Super fund for $495M
2 Special dividend to NZ Govt before sale of $300-$350M
3 Re capitalisation available from purchasers $300M if required - of course it's required, see above
4 The government has the right to buy back the shares if the purchasers cannot sell the shares outside of the shareholder base within 5 years.
Taking the last point first. This means that the government has effectively sold 45% of the bank as per the rest of the asset sales while appearing not to have. The expectation is clearly that the bank will be sold to parties out side of the government and probably the country. I thought that Key promised that it would not be sold. More lies?
Secondly, the first three points add up to the fact that the government is raiding the funds of the pension fund and ACC to fund its budget (albeit under the guise of recycling capital). These funds are meant to be independent of the government. The $350M special dividend and recapitalisation by the ACC and Super Fund is nothing but a naked transfer of funds to the governments coffers.
I have no illusions when it comes to Key, but what really gets me is that the opposition and journalists are so ineffective at raising these issues. Journalists just appear happy to parrot the government spin, while the lack of meaningful critique from the oppositions leaves them looking complicit.
yes this government only knows how to spend our future away
thats why i favour a set up like norway or singapore where politicians can not meddle and it is left to the board to determine the dividends back to them to spend as they wish and the funds can grow
the snowjob of selling the last assets to fund new assets was just that
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