Tuesday, 1 February 2011

But why?

Brian Gaynor writes in the New Zealand Herald that,
The Government has to convince the public that these companies will remain majority Crown and New Zealand controlled.
And I ask, But why? All this will do is, ceteris paribus, lower the amount that the government gets for the shares it sells. And then, of course, people will complain about the amount of money raised by the asset sales. 50.1% of a firm is worth a lot more than 49.9% so forcing SOEs to remain Crown owned reduces the return on a sale and the xenophobic requirement for New Zealand control reduces the number of bidders for an SOE and thus again lowers the amount that will be received.

While on the topic of "New Zealand control" of these firms, what happens if a New Zealander buys shares and then moves to, say, the U.S., will they be forced to sell their shares before they are allowed to leave New Zealand? Or what happens if a Canadian living in New Zealand buys shares - will they be allowed to by Gaynor? - and then returns to Canada. Must they sell their shares before leaving to ensure the same amount of "New Zealand control". Both these situation could result in less "New Zealand control", in some sense. When is there too little "New Zealand control"? Or does Gaynor equate "New Zealand control" with "state control"? If "New Zealand control" is "state control" then why worry about what happens to the non-state shares? Why not just sale them to the highest bidder, regardless of where they come from? Why would you want to incentivise "domestic investors"?

Gaynor goes on to make things worse by arguing that we should incentivise "domestic investors"?
Domestic investors should be incentivised to invest in the IPOs, either on their own accounts or through their KiwiSaver schemes. This can be achieved by offering shares at a discount to individual New Zealand investors and KiwiSaver funds.
Which would yet again lower the amount the government would receive for any sale. If "domestic investors" need to be "incentivised to invest" then may be its just because they don't believe that the shares are worth buying. As to KiwiSaver funds being "incentivised to invest" the aim of any such fund is to maximise the return to their investors and if the funds need to be incentivised it means that they too don't believe the investment is one worth making. Handing taxpayer money to these groups to bribe them to invest - this is what Gaynor's idea amounts to - doesn't sound like a optimal policy move. The whole point of a sale is to bring market discipline to these firm, distorting the market with taxpayers money seems an odd way of achieving market discipline.

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