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NZX backs partial privatisation call

Thursday 17th June 2010

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Partial privatisation of state-owned enterprises, an unwillingness to allow local opportunities to go offshore, and a compulsory superannuation savings scheme would all contribute to the health of New Zealand's capital markets, NZX chairman Andrew Harmos says.

Speaking at the local exchange operator's annual meeting in Wellington this morning, Harmos said the advent of NZX's new clearinghouse system in the next few weeks would be a huge boost to the exchange's capacity to offer new investment products and to grow.

"Without a clearinghouse, our market operates with one hand tied behind its back," Harmos told the sparsely attended meeting at the NZX headquarters.

"It will grow local capital market participation."

However, there were wider issues holding back capital market growth, in particular the "limited amount of quality investable opportunities" available to New Zealanders in their home market.

His comments followed a speech prior to the meeting by Air New Zealand and Solid Energy chairman John Palmer, who expressed a personal view that partial privatisations should be pursued, and could be managed politically if appropriately uncontroversial assets were involved and government majority ownership was retained.

"The Crown should leverage its current investment (in SOE's) with externally accessed capital," said Palmer.

Harmos cited as problems high levels of business ownership by central and local government, while much of the country's economic backbone, rural sector assets, was tied up in cooperative ownership.

"New Zealand is an outlier" compared to other developed economies because of its high levels of government and cooperative ownership, he said.

He contrasted this with Australia, where the backbone industry - mining - actively sought capital from public markets.

"We don't even have sufficient capital compete for our own strategic assets," Harmos said.

NZX chief executive Mark Weldon said the SOE sector was "a big part of the economy" and it was "critical that it is got right".

Weldon told the meeting that the NZX's growth over the next two to three years would come from its investment in the clearinghouse facility, which would allow NZX to start offering new derivatives products, such futures and options.

The clearinghouse development completed the "recrafting" of NZX over the last three years, and while the exchange did not expect straight-line profit growth, it anticipated continuing to deliver compound annual profit growth at levels similar to previous years.

In his remarks, Harmos touched on NZX's losing out to its Australian rival, ASX, to run the EnergyHedge electricity derivatives platform for the five big electricity generators - an opportunity NZX tried hard to win.

While he meant no direct criticism of the EnergyHedge board for its decision, Harmos said "there is a disconnect between policy and action and a disregard for second order effects on too many occasions" in New Zealand.

"Too often decisions are made that make it hard to break out of branch office mode. We don't take every opportunity to build scale here," said Harmos, who doubted the EnergyHedge decision would ever have occurred in Australia. NZX's attempts to establish an alternative share trading platform have been stymied, it believes, by political intervention to protect ASX's interests.

Harmos struck an unexpected note by playing the meeting excerpts from a speech given in the 1960's by the radical African-American icon, Malcolm X, warning black people that if they didn't invest in their own communities, then someone else would, and would take the profits elsewhere.

He also suggested that New Zealanders were "ready for some level of compulsion" for retirement savings, as long as it was phased in.

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