Non voting shares

Vernon Small at Stuff reports:

The Government has backed down on a move that would have allowed it to sell more than 49 per cent of partially privatised state assets, providing the extra shares did not carry voting rights.

Fairfax Media highlighted the loophole in April and it is understood that sparked a backlash from United Future leader Peter Dunne. It is understood the Government made a U-turn after Dunne dug in his toes, arguing the wording in the Mixed Ownership Model Bill would breach his party’s support deal with National.

Last night SOE Minister Tony Ryall moved the amendment to the Bill, which changed the requirement on the Government from retaining 51 per cent of the shares with voting rights to 51 per cent of all shares. …

But under the wording originally approved by ministers, the companies could have issuing or sold non-voting shares, diluting the taxpayers’ slice of the dividends and profits that the companies generate.

In April a spokeswoman for Ryall said voting rights were the best way to measure ownership, because it was the voting shareholding that determined the ability to control the companies.

Non-voting shares are effectively more a type of debt, rather than equity. Basically it is debt, with a variable return. If you get none of the benefits of ownership such as voting, it is not ownership.

Just as non voting shares would reduce the taxpayer share of dividends and profits, so would increased debt – in that the interest on the debt would mean less profit and hence dividend.

So I didn’t think that there was an inconsistency. However perception can be very important, and hence it is not a bad thing that the Government agreed to the United Future change. It means that at least on this issue, there can’t be any scare-mongering that the Government will dilute its 51% with non-voting shares.

Personally the actual issue non-voting shares would have been highly unlikely. It is an unusual way to raise capital. People generally want a guaranteed rate of return, or a stake in the company.

It also is useful for Peter Dunne to be able to demonstrate that he got a change in line with his confidence and supply agreement.