New Zealand: Why is the PM pressing ahead with asset sales?

When only some 14% of voters support them?

It appears bizzare that John Key should press ahead with the National Party policy of disposing of 49% of four state-owned energy corporations, if his government is re-elected on 26 Nov., despite overwhelming opposition from both Labour Party opponents and, more importantly, the wider population. Stung by asset disposals during Rogernomics in the 1980s, voters fear rising power prices and loss of control to foreign predators.

But his government's plan might be successful if implemented, nevertheless. 

He and his colleagues might shrewdly have calculated that capital previously invested by funds offshore will return to bolster the undercapitalised NZ sharemarket once these firms are listed. A slice of Air New Zealand shares are to be offered to the public too under the planned sell-off. This round of asset sales would reap the government a much needed NZ$7bn (US$5.4bn) injection.

A Research New Zealand poll states that a paltry 14% of Kiwis support the proposal, with 52% opposed, reports Bloomberg.

While this might appear to be electoral suicide, overall support for National has dipped only marginally to 49.5%, according to a recent New Zealand Herald-commissioned poll. In an effort to turn this around Key has said that asset sale proceeds will largely be injected into schools.

With a current capitalisation of only US$36bn, New Zealand's stockmarket is the fourth smallest in the Asia-Pacific region and now accounts for only 30% of GDP, a fall of around 28% from 1995. If the country wants to hang onto its market something needed to be done. Equally importantly, New Zealand fund management money which has poured into foreign investment in recent years has to be repatriated to boost the domestic economy and recapitalise the share market. 

Bloomberg reports that Guy Elliffe, head of equities at AMP, New Zealand's largest privately-owned fund manager, has said his firm "will “seriously” look at the stakes if they’re publicly traded". Tower, a local insurer, reportedly plans to more than double its holdings in New Zealand equities after "an asset-allocation review, pending board approval" according to Bloomberg.

This is vital as, in the recent past, about 25% of "New Zealand-earmarked funds have been invested in the Australian market" Bernard Doyle of JBWere, an investment firm, told Bloomberg. Pundits are speculating that money will migrate back across the Tasman after the floats.

The NZX awaits further boosts from the private sector. A portion of Fairfax Media's controlling interest in TradeMe, an internet consumer-to-consumer business, is to be publically offered. And 30% of Australian private equity firm Quandrant's 97% interest in Summerset, a retirement care company, is to be placed on the New Zealand exchange.

The New Zealand stock exchange should become far more robust by 2012. This follows extraordinary achievement of late, with the Wellington bourse outperforming those of "every other developed market this year" according to Bloomberg.

John Key's investment banking background was always likely to benefit New Zealand at some point. Is this it?

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