Asked by the Herald to elaborate on how the Crown would fund the purchase, a spokesman for the party said it would be open to KiwiSaver fund managers buying shares in the big new bank.
As previously announced, NZ First would also fund the purchase by:
Issuing regular government debt – New Zealand Government Bonds (NZGB)Creating a new sovereign wealth fund and getting it to issue debt (bonds) to specifically pay for the new bankGetting the Accident Compensation Corporation (ACC) and the New Zealand Super Fund to invest in the bankCapitalising on Kiwibank’s capital base
Bonds and shares would need to be traded locally
NZ First clarified it would only want Kiwi investors to buy the special bank bonds and would restrict them from on-selling the bonds to offshore investors.
The Herald assumes it would similarly restrict KiwiSaver fund managers from on-selling their shares in the bank to offshore investors.
It is unusual for investors to be told they can only trade among a relatively small pool of domestic investors.
Last year, Treasury and the owner of Kiwibank, Kiwi Group Capital, spoke to large New Zealand investors about buying up to $500 million of shares in Kiwibank that could then only be on-sold to the Crown to ensure the bank remained New Zealand-owned.
The Herald understands this restriction limited interest in the offer, which never went ahead (largely because a loosening of bank capital rules ended up meaning Kiwibank no longer needed the capital imminently).
Special bank bonds could cost the Crown more
NZ First conceded it was “possible” the special bank bonds it would issue would cost the Crown more than if it issued regular government bonds.
Investors typically deem government bonds to be the least risky type of bond, therefore demand lower yields (returns) than they do for corporate bonds or bonds linked to specific government initiatives.
NZ First said the bank bonds would add diversity to investors’ portfolios and be attractive to those wanting to increase New Zealand’s sovereign wealth.
Who would buy all the debt?
NZ First believed there would be enough appetite among investors to absorb the issuance of more regular government bonds, as well as bank bonds, to fund the purchase of BNZ.
To put $24b in context, Treasury is currently issuing about $35b of NZGBs a year.
While demand for these bonds is high, yields are rising.
Investors worldwide are increasingly worried about conflict in the Middle East causing inflation, and therefore interest rates, to rise. They are also wary of the amount of debt governments have taken on since the Covid-19 pandemic. Hence, US and British government bond yields have spiked.
The reason the Reserve Bank of New Zealand created money to buy NZGBs during the pandemic was to suppress yields, which jumped when investors started panicking about how much debt the Government was going to have to issue to pay for its response to the crisis.
NZ First sees credit ratings improving
While New Zealand has very strong credit ratings, agencies have recently revised their outlooks for the country to negative over concerns about how long it is taking the Government to pay down debt.
Nonetheless, NZ First believed issuing more debt to buy BNZ would not put upward pressure on bond yields. In fact, it believed the purchase could make New Zealand more attractive to investors.
“This will have the net effect of increasing our credit ratings as, for example, the OECD and ratings agencies have already called out that our uncompetitive banking sector is a drag on our economy,” it said.
“Owning our own bank will decrease our cost of capital, reduce monopolistic behaviour and increase competition.”
ACC and the Super Fund would ‘welcome’ investment, despite flogging off Kiwibank
Finally, NZ First would get ACC and the Super Fund (which have funds under management worth about $50b and $85b respectively) to invest in the bank.
The party believed ACC and the Super Fund would “appreciate the opportunity” to make an investment that contributed towards New Zealand’s sovereign wealth.
If they didn’t want to invest, the party would look at ways of requiring them to do so.
“Common sense will be our first port of call, first right of refusal is another option, a requirement in their constitution could be another,” NZ First said.
“However, bank investors do well and there are other investor options, such as KiwiSaver funds.”
The reason Kiwibank became 100% Crown owned in 2022, is because its former owners – the Super Fund, ACC and NZ Post – wanted out of the investment.
NZ First’s pitch to buy BNZ is unlikely to go ahead as National and Labour oppose the idea.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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