Hamish Rutherford: Kiwibank review: how do you decide what to pay for a bank that you cannot sell?


News that the Government had hired Goldman Sachs to conduct a review of the ownership of Kiwibank’s parent company prompted some interesting responses.

Before 9am on the day the story broke, Matt Robson, the former Alliance MP and Minister of Corrections had written toLabour MP Megan Woods, who inherited the Wigram electorate from former Alliance leader (and Kiwibank’s spiritual architect) Jim Anderton, almost pleading for information.

“Kiwibank is up for sale (a process long begun with many actors involved) and the playbook of the 1980s has been consulted.”

About the same time as Robson was firing off the letter, Clint Smith, a former Beehive staffer turned corporate lobbyist and self-appointed Government helper, had a different take.

“There’s no suggestion of Kiwibank being sold off to private interests,” Smith posted on Twitter, accusing the Herald of “disinformation” because the newspaper’s own Twitter account suggested the bank was “up for grabs”.

Finance Minister Grant Robertson was in no hurry to clarify. His office did not respond to a request to clarify after the story ran, beyond a cryptic statement ahead of publication.

When he appeared on his regular NewstalkZB slot on Monday, Robertson sounded like he wanted to say there was no way it would be sold to private investors, but didn’t quite get there.

“We want Kiwibank to stay in public ownership,” Robertson told Heather du Plessis-Allan, who quickly fired back asking Robertson: what if a private bidder made a huge offer, would he simply have to pay up?

Robertson said that was not how it worked, gave a wordy answer which did no more than outline the process to date. “The Government’s policy is that Kiwibank stays in public ownership.”

The Finance Minister is likely to have to be careful with his words and his response about policy does not answer the question.

Although there could be something to the contrary in a confidential agreement between shareholders and the Government, it would appear the Government has no more than the first right of refusal.

If that is the case, should Robertson or anyone else in the Government rule out a sale, it would throw up the potential for gamesmanship.

What if a major investor (who would of course have to pass Overseas Investment Office and Reserve Bank approval) presented Goldman Sachs with what would appear to be an outstanding bid?

The Government cannot leave itself in a position where it needs to simply match any possible offer, including spoof offers.

More likely the process will be one in which shareholders are hoping to find an exit at a respectable price.

NZ Post owned Kiwi Group outright until 2016 when the Super Fund and ACC paid $494 million for a combined 47 per cent stake.

“Investment opportunities of this size and potential are rare in New Zealand,” Adrian Orr, who was then chief executive of the Super Fund, said, adding that the fund “is in an excellent position to help Kiwibank achieve its long-term promise”.

Five years on, Kiwibank still has potential but also problems. As well as requiring capital to grow, it needs capital to meet new requirements coming from the Reserve Bank, now headed by Orr.

The review is believed to have been prompted by one of the shareholders wanting out.

The easy guess would be NZ Post, a business still struggling to maintain profitable postal services. It is widely seen as the key constraint on Kiwibank’s growth because it cannot reasonably be expected to kick in the capital needed to grow.

But ACC and the Super Fund also have reasons to question their investment, especially if the Government turns up on the share register. Both funds are obligated only to enter into investments on a commercial basis.

At the time of the 2016 transaction, it would have been feasible to believe it was a step towards either privatisation or at least a mixed-ownership scheme.

This now seems impossible. While the Super Fund arguably can sit and wait for the political winds to change again, ACC has annual obligations to cover its liabilities.

Waiting for the mood to change may only be worthwhile if Kiwibank’s shareholders believe that having the Government on the register will help, rather than damage, its prospects as a commercial entity.

Robertson has tried to pressure New Zealand’s banks to maintain branch networks in provincial New Zealand or expand the use of banking hubs currently being trialled.

Having a direct stake in Kiwibank may put it directly in line for pressure to meet the whims of the Government to meet the hopes of new Labour MPs who won traditionally National provincial seats.

Or it could face pressure to meet other obligations. In any event, having invested into Kiwibank’s owners on the basis of hoping to make a profit, if the Government arrives on the share register, management of ACC and the Super Fund will have fiduciary obligations to ask the question: is it time to get out?

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