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Gains for NZX from privatisations modest, Treasury

Friday 28th January 2011

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The listing of state-owned assets will not be a big bonanza for the local market, according to a Treasury report released today.

The Government this week floated the idea of extending Air New Zealand's mixed ownership model to state-owned electricity companies Mighty River Power, Meridian, Genesis and coal miner Solid Energy. The state would keep majority control, but the companies would list on the sharemarket.

New Zealand's capital markets are under-developed, Treasury says in a report. But it says that the listing of 25% of all three state-owned electricity companies would only increase NZX's capitalisation by around 5%.

It would not increase diversity, as the electricity sector was already the single largest sector currently listed on the NZX.

NZX chief executive Mark Weldon has said investors would welcome the arrival of large companies with stable earnings on the market.

But Treasury said too much weight should not be put on this argument.

"While investment opportunities are important - and certainly complementary to greater saving - domestic saving preferences are probably the more important driver of economic rebalancing.

"It is also perhaps an open question the extent to which individual retail investors would buy shares directly, rather than indirectly via a managed fund, such as a KiwiSaver account."

Treasury said New Zealand's sharemarket capitalisation as a percentage of gross domestic product was smaller than comparable countries and was not growing. This was because agricultural co-operatives, which make up 25% of gross domestic product, were not open to outside ownership and many companies were owned by central and local government.

"We think there would be modest economic gains through capital market development from listing some of the Crown's current commercial portfolio, mainly through increased size, depth and liquidity of the New Zealand stock market," Treasury said.

"We think the gains would only be modest because the more important drivers of capital market development are domestic savings and the broader tax and regulatory environment, as identified in the Capital Market Development Taskforce report."

Treasury said that in the past it has had mixed views on whether New Zealand needed its own sharemarket but more recently its view had evolved to recognise that foreign saving was not a perfect substitute for domestic saving.

Also, "localisation of information" appeared to be important.



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