The Dim-Post

April 6, 2016

A fascinating precedent

Filed under: Uncategorized — danylmc @ 1:34 pm

Via the Herald:

New Zealand Post Group has received a $495 million indicative offer from the NZ Superannuation Fund and Accident Compensation Corp to buy 25 percent and 20 percent respectively of subsidiary Kiwi Group Holdings, which owns Kiwibank.

The indicative offer, which is subject to a number of conditions including due diligence and board and regulatory approval, values KGH at $1.1 billion though the final price is still to be determined.

KGH owns Kiwibank and its associated businesses such as Kiwi Wealth Management and Kiwi Insurance.

NZ Post chairman Michael Cullen said the offer reflects the government’s absolute position that Kiwibank must remain in public ownership.

So if a future left-wing government wants to raise some cash without increasing taxes or cutting spending it can just direct its wealth funds to pony up some cash for non-transferable shares in fading SOEs. KiwiRail seems like a good candidate there. Good to know.

40 Comments »

  1. I don’t quite get the point of this.

    Firstly, Post’s fundamental problem is that mail volumes are shrinking fast. Anything non-postal they do, including getting a big hunk of money, isn’t going to change this in the long term. (and who’s going to own Postshop/Kiwibank counters?). They really need to follow Denmark and work out how to facilitate a world without paper letters.

    ACC doesn’t actually need to have big investments. It’s not an insurance company that might lose its premium income but still have to pay out claims – they have taxing abilities and the level of accidents isn’t liable to vary much year on year.

    And actually, Kiwibank would be better off as a crown entity with an explicit government guarantee – the community will wind up having to bail out failing banks somehow, so why not make this clear? And if the bank had a state guarantee, it would be able to pay less on deposits, lend more cheaply and hence achieve better profits and growth (at the expense of the Aussie banks). What’s wrong with that?

    Comment by richdrich — April 6, 2016 @ 1:53 pm

  2. National are getting along particularly well with former Labour leaders at the moment.

    Comment by NeilM — April 6, 2016 @ 2:20 pm

  3. Were the Greens tipped off to the dividend raid by Bill English, and they pre -empted it with a proposal for a capital boost instead. Would any of James Shaws contacts in Wellington ‘business/consultant mafia’ where he used to work being indiscreet?

    Comment by dukeofurl — April 6, 2016 @ 2:24 pm

  4. So the government gets a special dividend from NZ Post of 500 million in election year which it uses to declare a surplus and make six billion dollars worth of promises with?

    Comment by Sanctuary — April 6, 2016 @ 3:02 pm

  5. Danyl, shares in NZ Post aren’t being sold.

    You can find the press release here https://www.kiwibank.co.nz/about-us/press-releases/2016-04-06-stronger-circle-of-crown-owners-proposed-for-kiwibank/ .

    You can find the Green Party policy on Kiwibank here https://www.greens.org.nz/policy/smarter-economy/kiwibank-can-get-low-rates-all-us . I’d like to draw your attention to points 1 and 2 in the bullet list.

    The irony here is that a former NZL Finance Minister and Deputy Prime Minister is helping the National Government implement Green Party policy.

    Comment by Robert Singers — April 6, 2016 @ 3:03 pm

  6. Robert have you checked. My look at the company register shows Kiwi Group Holdings Ltd [KGH] who own Kiwibank have 839157403 shares (100.00%) that are owned by NZ Post.
    If you allocate a portion of them to someone else for consideration, its called ‘selling’

    Comment by dukeofurl — April 6, 2016 @ 3:13 pm

  7. @Dukeofurl https://www.nzpost.co.nz/about-us/who-we-are/new-zealand-post-group

    NZ Post Group is the parent company of NZ both NZ Post and KGH. Selling shares in KGH doesn’t change the ownership of either NZ Post Group or NZ Post. It is also one SOE selling shares to two other SOEs.

    I also seem to recall that the NZ Super Fund was created by the Labour Government in around 2001. Cullen was Finance Minister and Anderton was Deputy Prime Minister. The same Anderton whose collation criteria was the establishment of Kiwibank.

    Not saying there is any conspiracy here; just pointing out these are all financial organisations created by a left-wing government.

    Comment by Robert Singers — April 6, 2016 @ 3:27 pm

  8. For the sake of clarity, I’m assuming when Danyl says “fading SOE” he’s referring to NZ Post which is the unprofitable company in the group. I assume he wasn’t randomly posting in a fit of pique about something he is ignorant of.

    Comment by Robert Singers — April 6, 2016 @ 3:35 pm

  9. Interesting to see the Superfund and ACC are allowed to purchase a stake in KiwiBank but not private companies. How is that a competitive tender process? Not sure what the Commerce Commision will think of that.

    Of course just for fun one of the American banks who are shut out of the process should say that if the sale goes ahead they will sue the NZ Government under TPP Investor State Disputes Mechanism for non tariff investment barriers. I doubt they’d have much luck in the courts – but I understand that the mere threat of a trade lawsuit (regardless how unfounded) is enough to make Murray McCully give you millions of dollars to smooth things over.🙂

    Also – over the longer term the NZ Super Fund has an objective to sell down it’s assets over many decades to fund the baby boomers retirement – are the National government trying to set the record for the worlds slowest privatisation!😛

    Oh, and “if a future left-wing government wants to raise some cash without increasing taxes or cutting spending” – the Greens policy is that ACC moves to pay-as-you-go and no longer needs prefunding. But ACC currently has almost $30Billion in accumulated funds under management for the purpose of prefunding. It’s be kind of fun to try and blow it all in a few weeks – picture James Shaw with an Oprah style giveaway bonanza: “A Tesla for you, a Tesla for you…!!”

    Comment by Richard29 — April 6, 2016 @ 3:40 pm

  10. Its obvious Robert that you are neither an expert nor have you checked your claims. Congratulations for finding the third way.
    As no one but yourself has mentioned ‘NZ POST’ shares being sold. A 100% owned subsidiary is being sold down, which remarkably you dont consider as ‘ selling’, perhaps there is a third way on that one too.
    Its clear that one subsidiary is being part sold so that the money received can make the NZPost Group books look better as another subsidiary is losing money. Especially when the shareholding minister is insisting on a special dividend.

    Comment by dukeofurl — April 6, 2016 @ 4:03 pm

  11. @dukeofurl starting the irrational frothing at post 10, that’s a bold move. Normally people have the decency to wait until Mr Geddis has done some lawyering.

    Comment by Robert Singers — April 6, 2016 @ 4:11 pm

  12. I gather from that RS , that you have cast all your pearls.

    Comment by dukeofurl — April 6, 2016 @ 5:40 pm

  13. There’s got to be an easier and cheaper way of raising $50 than selling half of Kiwirail.

    Comment by Tinakori — April 6, 2016 @ 6:37 pm

  14. Every three years the opposition parties propose directing the Super Fund to do something they like – whether it be the Greens on ethical investment, NZ First on infrastructure, etc. And every three years National and their media mouthpieces sneer and say “leave it to the experts”, or “socialist interventionism!!11!!”.

    In short … ha ha ha.

    Comment by sammy 3.0 — April 6, 2016 @ 6:45 pm

  15. So, remind me, how does swapping assets between different crown-owned entities generate money? This reminds me a lot of derivatives trading.

    Comment by James Green — April 6, 2016 @ 6:55 pm

  16. Is the government really going to direct the NZSF and ACC? That would be very concerning if it was the case.

    Comment by Matthew W — April 6, 2016 @ 7:32 pm

  17. It looks like it’s going to take some folk a while to calm down after the Voluminous Disclosure.

    Comment by Richard — April 6, 2016 @ 8:48 pm

  18. It’s hard to contemplate the mental gymnastics required when another party moves towards something you’ve been advocating ages, and you still find the reserves to come out with a face that looks like its been sucking a lemon. It’s not like you’re married to them or anything.

    Tinakori – $50.00 is about a week’s Lattes IMO.

    Comment by leeharmanclark — April 7, 2016 @ 8:12 am

  19. “Tinakori – $50.00 is about a week’s Lattes IMO.”

    Yes, with Kiwirail’s cumulative losses totalling over $900m since 2008-2009, perhaps I am being too optimistic and $25 or half a weeks lattes might be more realistic

    Comment by Tinakori — April 7, 2016 @ 9:33 am

  20. Is the government really going to direct the NZSF and ACC?

    They’ve been at it for a while – you think Z Energy’s gas stations were really a good investment for the Superfund, or a good sale for Shell and a nice deal for “partner” Infratil, both of whom will be appropriately grateful.

    Comment by richdrich — April 7, 2016 @ 10:11 am

  21. “They’ve been at it for a while – you think Z Energy’s gas stations were really a good investment for the Superfund, or a good sale for Shell and a nice deal for “partner” Infratil, both of whom will be appropriately grateful.”

    It seems to have been a good deal for Infratil and the Superannuation Fund. It listed at $3.73 in 2013 and its last price was $6.87. The Super Fund hardly needed government direction to be part of a deal like that. It was also always a good business. Shell’s sell off was part of a world wide policy and had nothing to do with the profitability of the business in NZ which was pretty robust. That’s why a partnership to buy it between Infratil and the Fund was an attractive proposition.

    Comment by Tinakori — April 7, 2016 @ 11:17 am

  22. Tinakori, in respect of Kiwirail, they are mostly paper losses.
    “The state-owned rail operator reported an operating profit of $91m,[2015] 17 per cent up on the previous year.
    The net loss reflects the impairment of KiwiRail’s rail assets. The network does not generate enough money to cover the level of required investment, so a large proportion of its accounting value has to be written off each year.
    Railways are expensive assets to maintain and repair in a mountainous country like NZ

    The debacle over one of the cook strait ferries cant have helped, sending a boat over to Singapore the be lengthened ended up as a huge loss as the boat was useless when it came back. Now replaced by a expensive leased boat.

    Care yo ask how much Xero’s accumulated losses – actual cash- are ? Their annual report [2015] gives it as $85,490,000

    Comment by dukeofurl — April 7, 2016 @ 11:18 am

  23. Xero like a lot of similar companies trades off initial losses against long term profitability and the latter expectation is expressed in the share price at any given time. Kiwirail (aka NZ Rail, Tranzrail and Toll) has struggled for many, many years in public and private ownership., and before and after privatisation. The repeated losses(paper or otherwise), capital write downs and, latterly, injections of capital from the Crown reflect this fact. While there is a strategy to cover its costs it is rather more hopeful than Xeros’s whose losses, profits and share price reflect the judgements of risk taking private investors who can enter and exit as their views change. That ain’t the case with taxpayers who have a long and sad history of supporting rail when its underlying economics suck big time. Back in the day New Zealanders paid more for all goods that had to be transported more than a certain distance because they had to be carried by rail by law. At the moment I think the only profitable part of the network is the central north Island triangle of Hamilton, Tauranga and Auckland and a couple of other isolated lines. Support for rail in its current form is fundamentally a political project not a commercial one.

    Comment by Tinakori — April 7, 2016 @ 12:45 pm

  24. @ duke

    The Aratere still seems to be plying the strait according to the Interislander website, not sold off or useless.

    Comment by insider — April 7, 2016 @ 12:47 pm

  25. “So if a future left-wing government wants to raise some cash without increasing taxes or cutting spending it can just direct its wealth funds to pony up some cash for non-transferable shares in fading SOEs. KiwiRail seems like a good candidate there. Good to know.”

    By time Labo Greens NZ First Uncle Tom Cobley get to form a government the cupboard will be utterly bare.

    Comment by Simon — April 7, 2016 @ 12:47 pm

  26. @ tinakori

    That rule on transport limits is why you see a whole range of derelict warehouses on the side of NZ highways. You used to see mini oil terminals too but they all seem to have gone.

    Kiwirail have an interesting history on their website – reading some of it below it is like looking at a Green Party policy document or the comments section of the Stranded.

    “In December 1927 the President of the Wellington Chamber of Commerce, Charles Bowden wrote in the New Zealand Railways magazine, “It must be apparent to all that the problem of co-ordination or competition of rail and road services is one of the most difficult problems of our day.

    “I consider the cost of distribution in New Zealand to be probably the highest factor in our cost of living budget…, and is worth inquiry.”

    Coincidentally, the Prime Minister of the day, Gordon Coates, announced a commission of enquiry on the day the magazine was published.

    “It seems plain that enormous development may be expected in the use of commercial motor vehicles,” he said. …. “There may be needless duplication and overlapping of roads and railway all eventuating in huge cost…”

    The result was a form of regional transport licensing and freight concessions to encourage use of rail. Then, in 1936, the Labour Transport Minister Bob Semple introduced legislation which preventing trucks from carrying loads more than 30 miles (48km) and restricting new trucking operators to those that could prove a need for their services. Bus companies also had to be licensed, and their vehicles, timetables and fares approved, by the Government.

    Road transport could still carry passengers and goods over and above the legal restrictions, but to do so, they had to gain approval from quasi-magisterial Transport Licensing Authorities.

    The trucking restriction was extended to 40 miles in 1961 and again to 150 kilometres in 1977.”

    And you try and tell the young people of today that, and they won’t believe you.

    Comment by insider — April 7, 2016 @ 1:09 pm

  27. The Cook Strait ferries are no less reliable than any other ships, it’s just that there are only a handful of them and they operate in a news-light environment.

    When a ferry breaks down badly on the English Channel or in Scandinavia, it gets sent to a repair yard and another one subbed in. It isn’t even slightly newsworthy and hence nobody cares (unless it sinks and kills a few hundred Sun readers🙂

    It’s only here where the media have nothing to write about that ferry breakdowns are newsworthy – see also car crashes, people missing their plane, people swearing at their neighbour, etc.

    Comment by richdrich — April 7, 2016 @ 1:09 pm

  28. The real precedent here is a government laundering capital from a long-term state investment fund via an SOE. Mr English plans to pocket two thirds of the sale proceeds for his pre-election slush fund: http://norightturn.blogspot.co.nz/2016/04/plunder.html

    Comment by Sacha — April 7, 2016 @ 1:11 pm

  29. Tinakori, roading funding is spent politically. There is a new State highway been designated for the central spine of Northland, soley to pay for the use by logging trucks.
    Overall the countrys roads, suburban and rural included, probably half ‘dont pay their way’ ie usage is far less than upkeep costs. Ask all the small rural councils and even those with an urban core how they pay for their road network. Its subsidized from the government.

    Even Air NZ says its regional network has many routes that are a loss leader. Similar results for rural electricity networks, NZ Post rural deliveries.
    Why should rail be a special case that has to operate so that no train service ever runs at a loss.

    Its clear that you have a rather blinkered view of NZ that doesnt take notice of much outside the main centres

    Comment by ghostwhowalksnz — April 7, 2016 @ 1:17 pm

  30. @ghostwhowlaksnz I find it amusing that you’re accusing TINAKORI of not caring about the regions with no apparent sense of irony🙂

    Comment by Robert Singers — April 7, 2016 @ 3:17 pm

  31. Tell us all more of the great secrets of social media and handle names that you have uncovered RS. Is not Tinakori a road that is the heart of the wellington beltway? Knock me over and call me a frenchman

    Comment by dukeofurl — April 7, 2016 @ 4:15 pm

  32. “The real precedent here is a government laundering capital from a long-term state investment fund via an SOE.”

    Alternative headline: “Government returns taxpayers money to taxpayers” That’s audacity!

    “There is a new State highway been designated for the central spine of Northland, solely to pay for the use by logging trucks.”

    If this is the highway the Greens and Labour refer to as the holiday highway and is intended in their view for the use of rich pricks it is clearly not designed solely for the use of logging trucks, unless logging trucks are the next fashionable vehicle of choice for yummy mummies on the school run in Remuera and for the long haul to the holiday home somewhere up North.. If either loggers or rich pricks use it they will also pay for it through petrol excise or road user charges and, if they are from Northland, will help pay for the local feeder roads through rates. In any event better roads will be the biggest boost to economic development in the region – and decreasing poverty – in Northland’s history. But I guess, Ghost, you would prefer to maintain and use rail lines that cost local taxpayers money to subsidise and generate no added value for Kiwirail, the region or the nation.

    Comment by Tinakori — April 7, 2016 @ 4:40 pm

  33. @Sacha: “Mr English plans to pocket two thirds of the sale proceeds for his pre-election slush fund:”

    Even the notably hyperbolic Idiot Savant does’t actually go so far as to say that the money will be used for a ‘slush fund’,

    Comment by Ortvin Sarapuu — April 7, 2016 @ 7:22 pm

  34. Well they dont know much about Northland from Tinakori Rd do they.

    “A proposed new state highway is being set up as the “Northland Inland Freight Route” from just south of Lake Omapere on SH 1, via Kaikohe, across SH 12, south along Mangakahia Road, through Titoki to Maungatapere, across SH 14 and down Otaika Valley Road and Loop Road to SH 1 near Portland. Wikipedia

    and NZTA
    “The Northland Inland Freight Route is vital for the region’s economy as an important link between the forestry industry, wood processing plants and the bulk export port at NorthPort.
    The NZ Transport Agency has now approved its plans to change the designation of Te Pua Road, Mangakahia Road, Otaika Valley Road and Loop Road, which have until now been designated Arterial local routes, to become a state highway.

    Comment by ghostwhowalksnz — April 7, 2016 @ 7:26 pm

  35. pwned by phantom. Heh

    Comment by paritutu — April 7, 2016 @ 8:42 pm

  36. And the problem is, Ghost?

    Comment by Tinakori — April 7, 2016 @ 9:33 pm

  37. Since you asked Tinakori, its a local road that will be subsidised by being paid for by part of the national network, the price mentioned being some millions to start and then ongoing money.
    “As the Transport Agency is fully responsible for costs associated with state highways, this will free up local authority funding for other priority works.
    NZ Transport Agency has proposed designating the Northland Inland Freight Route as a state highway, and will meet the $5m per annum maintenance cost fully from the National Land Transport Fund.”

    This route is specifically mentioned as being for logging industries,

    So sort of throws your ideas of rail lines being kept going at a loss being a problem on the scrap heap. Sames goes for most other infrastructure. Indeed the new fibre broadband network is highly subsidized by the government.

    As for much of your views, when looked at in detail, they are found to be mostly hot air. We cant get these things all right all the time but if this was a cricket team your batting average is much below par.

    Comment by ghostwhowalksnz — April 8, 2016 @ 6:41 pm

  38. … are the National government trying to set the record for the worlds slowest privatisation!

    Possibly, but they’d have to have more confidence in the long-term value than most observers have, for that to be the plan.

    This is not just about generating cash now. I figure the long-term plan here is to reduce the demand for future capital investment directly from the government. If Kiwibank has big plans they can try dragging money out of all their investors, which will now have include o two quasi-private institutions not reliant on the government budget.

    Besides that there’s no appetite for privatising things like Kiwibank, NZ Post, TVNZ or Kiwirail. Too much blood and screaming for too little money. Better to just let them die slowly and allow future left-wing governments to try and win the arguments for ploughing even more money into them. After the debacle that was the “charter” and BooBoo’s guidance I doubt we’ll hear much like that again, although I could appreciate a future slogan for the TV folks : Make TVNZ Great Again.

    Comment by Tom Hunter — April 9, 2016 @ 4:03 pm

  39. Ghost – how do you figure UFB is “highly subsidised by the government” when the taxpayer is footing less than 20% of the total cost, and of the money stumped up, half is in stock and half in a loan repayable in 2020?

    Comment by Gregor W — April 9, 2016 @ 9:04 pm

  40. If Northland was asked where they want investment in their economic development, I bet it would be tertiary training and business support to create sustainable jobs, not tarmac for truckies.

    Comment by Sacha — April 10, 2016 @ 11:43 am


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: