Bloomberg News

Key’s $5.4 Billion Asset Sale Lures Funds to Quake-Hit N.Z.

November 13, 2011

(Add opposition leader’s comment in 13th paragraph.)

Nov. 11 (Bloomberg) -- Some of New Zealand’s biggest investors will inject millions into the nation’s stock market if the government is re-elected this month and sells as much as NZ$7 billion ($5.4 billion) of shares in state assets.

Tower Ltd., which manages NZ$3.9 billion of funds, will likely buy shares in the assets as part of a wider strategy to switch NZ$200 million into Australian and New Zealand equities from its global share-holdings, Chief Executive Officer of Tower’s investment unit Sam Stubbs said in an interview. AMP Capital Investors, the biggest privately-owned fund manager in New Zealand, will “seriously” look at the stakes if they’re publicly traded, said Guy Elliffe, head of equities.

Prime Minister John Key is seeking a mandate from a Nov. 26 election to sell 49 percent stakes in state-owned Mighty River Power Ltd., Meridian Energy Ltd., Genesis Power Ltd. and Solid Energy New Zealand Ltd. Key’s National Party had 49.5 percent support in a New Zealand Herald-commissioned poll published today, with 28.7 percent favoring the main opposition Labour Party, which is against the sales.

“We have come to the conclusion that we should be basically on-shoring more assets to New Zealand and Australia,” said Stubbs. “If these things end up getting listed and we like the valuations, then we’ll bring that money over from Australia, over here to invest.”

Air New Zealand

Tower had about NZ$192 million invested in New Zealand equities and NZ$56 million in Australian shares as of Oct. 31, according to data provided by the company. Tower plans to add NZ$200 million to those holdings after an asset-allocation review, pending board approval, said Stubbs. Other large investors are likely to be planning similar moves back into those markets, he said.

The government aims to raise between NZ$5 billion and NZ$7 billion from selling the four stakes and reducing its 73 percent stake in Air New Zealand Ltd. to as low as 51 percent. That will help cut government debt and interest payments, it said. The companies’ resulting market values are likely to boost the New Zealand stock exchange’s value by at least 20 percent, said Bernard Doyle, an Auckland-based strategist at investment adviser JBWere (NZ) Pty Ltd.

The proposed asset sales are “institutionally credible offerings,” AMP’s Elliffe said in an interview. While the fund manager doesn’t comment on individual securities, it “definitely considers them as interesting investment opportunities” depending on price, he said. AMP Capital manages about NZ$130 billion of global funds, of which NZ$1.1 billion is held in New Zealand equities.

Shrinking Market

“A lot of New Zealand fund managers have, over the past decade or so, migrated to a mandate whereby they can invest up to roughly a quarter of their New Zealand-earmarked funds into the Australian market,” said Doyle. “You’ll see money migrating back as you get these bigger companies back on to the market, out of the Australian market.”

New Zealand’s stock exchange is the fourth-smallest in the Asia-Pacific region, ahead of only Pakistan, Vietnam and Sri Lanka. It has a market capitalization of around $36 billion. The country’s stocks have outperformed every other developed market this year as investors have been attracted by the prospect of rebuilding after the nation’s deadliest earthquake for 80 years struck Christchurch in February.

Fifteen years ago, the market value of the exchange was the equivalent of 56 percent of the nation’s gross domestic product. That has shrunk to about 30 percent this year and daily trading volumes haven’t grown in that period, according to Doyle.

Fairfax Float

The government’s potential floats follow a public offering expected to open next week for a 34 percent stake in Trade Me, New Zealand’s equivalent of EBay Inc., which is likely to earn around NZ$530 million for owner Fairfax Media Ltd.

Key’s asset-sale proposal is the most unpopular in his election campaign so far. About 52 percent of New Zealanders oppose the sell-off and 14 percent support it, according to an Oct. 30 Research New Zealand poll.

“The Prime Minister is desperate to sell these assets to fill the fiscal hole his government has created,” Labour Leader Phil Goff, 58, said in a statement today. “The market will read that desperation as ‘mortgagee sale’ and drive the sale price down.”

Today’s Herald poll, of 750 people conducted from Nov. 3-9, showed Key, 50, was the preferred prime minister among 68.5 percent of voters, with Goff backed by 17.9 percent. The poll has a margin of error of 3.6 percent.

--Editors: John McCluskey, Nick Gentle

To contact the reporter on this story: Chris Bourke in Wellington at

To contact the editor responsible for this story: Edward Johnson

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