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Plenty of cash on deposit to support Govt's SOE floats, says Bollard

Thursday 8th December 2011 2 Comments

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The $7 billion target for asset sales is a mere a drop in the bucket of lenders’ retail funding, according to Reserve Bank Governor Alan Bollard.

The so-called mixed ownership model, where the government will sell up to 49 percent of its stakes in electricity companies Genesis Energy, Meridian Energy and Mighty River Power, coal miner Solid Energy, and Air New Zealand, expects to raise between $5 billion and $7 billion.

That’s just 4.3 percent of the $163.7 billion of term deposits with registered banks at the end of October, according to Reserve Bank data.

Non-bank deposit takers held a further $12.7 billion in deposits as at the end of September.

“The sort of amounts for the mixed ownership model sales are likely to be a very small proportion of domestic deposits,” Bollard told reporters in Wellington today. “It could slow growth in domestic deposits, but I wouldn’t expect it to be much more than that.”

Banks are experiencing strong annual deposit growth of about 9 percent in October, the central bank said in the December monetary policy released today.

Household saving rates have been increasing over the past couple of years as people use record-low interest rates to repay outstanding debt rather than ramp up spending.

The central bank expects that to enter positive territory, where households become net savers rather than net borrowers, in the March 2013 year.

Last month, Finance Minister Bill English told Bloomberg TV he would expect to see households line up for a share in the floats as they take money out of bank accounts and look for better investment opportunities after the collapse of the finance sector through the latter part of the decade.

Prime Minister John Key indicated Mighty River and Genesis were likely to be first on the block, though Meridian is expected to attract the biggest payday.

The Treasury estimates Meridian could sell for as much as $3.1 billion in a partial sale to private investors. Mighty River Power could raise as much as $1.8 billion in a partial float, while Genesis Energy could attract $780 million and Solid Energy $830 million. Selling more of its stake in Air NZ could attract $280 million.

Local fund managers have thrown their support behind the sale, with Tower Investments chief executive Sam Stubbs indicating he will repatriate funds from Australian energy investments to buy into the floats, and AMP Capital Investors NZ head of equities Guy Elliffe has shown a willingness to grab a stake in the floats.

The government plans to legislate a cap on a single entity’s holding in the companies, with 10 percent being the number bandied about. As part of its governing agreement with United Future, the National-led administration will write into law the Crown must hold at least 51 percent of the SOEs’ shares.

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Comments from our readers

On 9 December 2011 at 8:33 am Peter Rider said:
I am far from being an expert, but to me it seems quite an imbalance to have three times as much in bank term deposits compared to the market capitalisation of the NZX. Pushes me to support sale of state assets. Am I resding things correctly.
On 9 December 2011 at 10:29 am Tony Ryburn said:
Yep I reckon you are, Peter
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