The 10% cap for SOEs

The Government has announced a 10% cap for any one shareholder in the SOEs which will have minority stakes sold off, if the Government is re-elected.

This will have two impacts. The first is that it does mean that the Government won’t receive quite as much money as it would otherwise, for the minority stakes.

If your only aim is to maximise the initial share price, then you would sell them with no restrictions as Labour did in the 1980s. Buyers will pay more if they can gain a controlling interest or even a significant minority interest.

The cap will however make it less likely that a significant number of shares will be purchased by foreign companies. A 10% cap means that a foreign company won’t have enough shares to expect to appoint a director (in theory the Government with 51% could veto such appointments anyway) or be able to gain a sizeable enough stake so that they become an effective co-owner with the Government.

Now for a foreign company to gain shares in an SOE, means they have to be prepared to pay more for those shares than a NZ company or individual would. Now this will still happen to some extent as everyone can have a different view of a company’s value, but the proportion which end up overseas is highly likely to be quite modest due to the 10% cap.

I suspect there will be strong demand for the shares not just from individual NZers (who have around $300b in financial investments) but from KiwiSaver providers $9b (according to Min of Finance release), Crown investors (ACC, GSF, NZSF) $40b and Iwi $10b. All of those are likely to be long-term investors, not buying shares in an IPO to flick them off six months later.