NZX's Weldon urges govt to push on with state asset sales

Tuesday 26th October 2010 1 Comment

Government decisions on privatisation of state-owned companies are a key part of “ability for the capital markets to keep working in New Zealand,” says NZX chief executive Mark Weldon.

Commenting in the wake of the Singapore stock exchange operator, SGX’s, A$8.4 billion takeover bid for its Australian counterpart, ASX, Weldon said there was still a role for a local share market both because local companies will want a domestic venue for capital-raising, and because global players won’t pursue small and mid-sized opportunities.

However, Weldon indicated the need for more substantial deal flow to justify the long-term investments in trading and clearing house infrastructure that NZX has been making in recent years.

“There is a need to have clarity around the SOE programme,” Weldon told BusinessDesk. “That’s one thing that will give consistency and scale and ability for the capital markets to keep working in New Zealand.”

Weldon remains open-minded about the best interests of NZX shareholders, if not the wider stakeholders who currently use the NZX platform to seek capital.

“From a stakeholder perspective, we have continued to operate this organisation building for the long term,” he said. “We’ve made very substantial investments in infrastructure, but there would be things you could do around a corporate transaction that would clearly be in the shareholders’ best interest; then we are clearly keeping an open mind.”

“We’re not saying ‘come hell or high water, we will run this thing’,” Weldon said.

NZX shares rose 2.6% to $1.59, following news of SGX’s offer yesterday. ASX dropped 5.4% to A$39.48, having soared 19% yesterday.

Weldon said he was “confident that smaller companies would be significantly worse off without an exchange in any country. People are dreaming if you believe there will be no exchange in the country.”

“Regardless of the economic diagrams, there’s a big difference being Belgium and having no stock exchange and being NZ and having no stock exchange,” Weldon said. Belgian companies were closely integrated in the European Union and could easily seek capital market listings and liquidity in neighbouring countries. New Zealand’s situation was entirely different

If there were no local share market, head offices and corporate finance professionals would head to Sydney and Singapore under the SGX/ASX tie-up.

“What happens to capital market jobs with no local stocks to trade? We would see what little human capital there is here atrophy and the jobs would be run from Sydney or Singapore,” he said.

“If you just look at it from a stakeholders’ perspective and imagine a world where New Zealand has no stock exchange, all of the capital market professionals that deal with the company would somewhere else,” he said. The needs of small and medium-sized companies would be unmet, while he believed there would be “no likely interest in Singapore or Australia in having a slice of New Zealand.”

“If I’m sitting in Singapore, I have no interest whatsoever.”

However, New Zealand needed more “national champion” investment opportunities, since it was “hard for a capital market to outgrow its economy,” he said. “In New Zealand, that’s Fonterra.”

Partial privatisation of some state-owned businesses was strongly advocated in the final report of the Capital Markets Development Taskforce, late last year. Prime Minister John Key has said he would campaign before an election before supporting such a policy and has yet to declare a position, a year out from the date a general election must be held.

Weldon also cited CMDT research showing that while there was better liquidity in the ASX top 100 stocks than in the NZX’s top stocks, “it’s rubbish at lower caps”, and better on the NZX.

“Just because two people have announced a deal doesn’t dramatically change anything. We are going to keep an open mind about what the best set of shareholder and stakeholder outcomes could look like here.”

(BusinessDesk)

Businesswire.co.nz

Comments from our readers

On 27 October 2010 at 9:09 am Trevor said:

The NZX might like to look at this idea. The Govt is reluctant as yet to open SOE's to public share holding, but what if there was an IPO for a public company that bought Govt bonds, made PPP deals & generally expanded on what Infratil does with a specific focus on interaction and funding enablement for SOE's without directly owning SOE shares. Sort of SOE shares by proxy. The effect would be the same, the extra funding would be available to the SOE and the public gets to trade in pseudo SOE shares. A bit like Fonterra's new model. Would this work? Perception is everything.