17 December 2024
Mark ListerKiwibank has been in the news again, with the Government announcing it will consider tapping KiwiSaver funds and other large investors for another $500 million of capital.
Our state-owned bank has long been touted as a candidate for an initial public offering (IPO), which means a sharemarket listing which would make it available to anyone who wants to invest.
However, apparently it will need to complete its digital transformation first, which is expected in 2028.
Hopefully this move is a stepping stone on the path to a full-blown listing, because I think Kiwibank is a great IPO candidate.
It’s important we retain control of Kiwibank and keep the bulk of its profits within New Zealand.
Many of us want a bank we can support, rather than one with a head office in Melbourne or Sydney. What I don’t like is the idea of politicians running businesses, at least not on their own.
They’re just not very good at it, and we see evidence of this time and time again at both central and local government level.
The ports sector is one obvious example.
Numerous ports across New Zealand are owned by local councils and subsided by ratepayers on the back of an underwhelming operating performances.
In contrast, Port of Tauranga and Napier Port are majority owned by local councils, but also partially listed on the sharemarket.
They’ve have thrived in the listed arena, becoming very successful companies with superior governance to their peers.
We’ve come to know this as the “mixed ownership model”, after the phrase was used ahead of the partial sale of the three state-owned electricity companies a decade ago.
During 2013 and 2014, the Government sold just under half of Mighty River Power (now known as Mercury NZ), Meridian Energy and Genesis Energy, and listed the three of them on the NZX.
I started my career in the electricity industry almost 25 years ago.
Back then, those companies were bloated, slow and inefficient compared with their publicly listed peers.
They didn’t always operate commercially, nor did they seem as fussed about getting a fair return on their assets.
A year or two after listing, I remember asking one of those Chief Executives about the biggest change he’d noticed since the sharemarket float.
“Scrutiny” was his answer, because of the increased pressure to manage the business efficiently, spend every dollar wisely, and to have a clear strategy.
There’s nowhere to hide when you have an army of competent, experienced analysts and investors watching and judging your every move.
Those electricity companies are far better businesses today than they were ten years ago, which is reflected in the steady earnings and share price growth we’ve seen over the period.
The Government still owns 51 per cent of each of them, so they’ve continued to benefit as a major shareholder, while also retaining control.
I’d rather own half of a great business than all of a lesser one.
The vast bulk of the profits have largely stayed in the country too, with most of those shares still owned by New Zealanders.
It’s just that they’re held by Kiwisaver funds and private investors, rather than the Crown.
This approach has allowed the Government to release funds to spend on other priorities, fostered stronger businesses and broadened our sharemarket and range of investment options.
A sharemarket listing makes things much easier when new capital is required too, and having enough capital (as well as access to more) is crucial for a bank to be successful.
That’s especially the case if you want to go head to head with big Australian competitors with very deep pockets.
The mixed ownership model has provided the best of both worlds for all involved, and politicians of all stripes would be wise to keep this in mind as they ponder the next phase of growth for Kiwibank.
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