Govt greenlights Kiwibank raising $500m ahead of eventual float

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The government has given Kiwibank's parent, Kiwi Group Capital, and the Treasury the green light to raise up to $500 million from institutions including KiwiSaver funds ahead of an eventual public float. Once the capital is raised it could allow Kiwibank to lend up to an extra $10 billion to home buyers or $4 billion to businesses.

Tuesday, December 10th 2024, 5:54AM 1 Comment

by Jenny Ruth

Finance minister Nicola Willis announced the decision, saying that all the capital raised would be used to fund Kiwibank's future growth with no return of capital to the Crown.

“The change will enable the New Zealand-owned bank to more vigorously compete against the big four Australian-owned banks,” Willis said.

Long-term, the most accessible source of additional capital for Kiwibank “is likely to be through a public share offering,” Willis said.

“However, Kiwibank will not be ready for this until its current digital transformation is completed – expected by 2028 – so no decision on an initial public offering will be made in this term of government,” she said.

It has long been thought that Willis favoured the idea of floating Kiwibank and she has previously said publicly that the government intended to implement the Commerce Commission's recommendation that the government seek ways to provide Kiwibank with more capital.

The competition regulator wants Kiwibank to be able to act as a “maverick” to shake up the “oligopoly” of the four major banks and Kiwibank has said it was ready to play such a role.

Today, Kiwi Group Capital chair David McLean said he welcomes the prospect of more capital for Kiwibank but that he is “committed to preserving Kiwibank's purpose and Kiwi identity.”

Treasury advice released in October also suggested that it also favoured a Kiwibank float but the parts of the advice relating to the state of Kiwibank's IT systems were redacted.

Fund managers canvassed by GoodReturns' sister publication, Asset Magazine, earlier this year made it clear a Kiwibank float would be enthusiastically welcomed by the investment community.

But they also thought Kiwibank's performance would need to be improved.

Harbour Asset Management managing director Andrew Bascand said he would also need to scrutinise Kiwibank's growth strategy.

“Kiwibank has an improving arc of profitability – they're not going backwards, which is good,” but he reckoned the bank would need to be targeting return on equity (ROE) in double digits.

The Reserve Bank's bank dashboard showed Kiwibank's ROE in the September quarter was only 4.9% compared with Westpac's 13.8%, ASB's 12.6%  and both ANZ Bank New Zealand and Bank of New Zealand's 10.7%.

Fisher Funds chief investment officer Ashley Gardyne said an NZX listing would be positive for Kiwibank as well as for NZX and investors.

“Banks are very capital-intensive businesses – there aren't many globally competitive banks that aren't listed on a stock exchange somewhere,” Gardyne said.

“It would be great for capital markets and it would be one that would be reasonably sizeable and quite liquid.”

Its likely size would also mean it would join the Top 50 index and that would automatically create demand from passive funds.

Salt Funds Management managing director Matt Goodson said a listing would likely improve Kiwibank's corporate governance: “The gentailers became much, much better and I would certainly expect that to be the case,” Goodson said.

The previous National Party-led government floated 49% of the three large gentailers, Meridian, Mercury and Genesis in 2013 and 2014.

“I would certainly welcome an additional and presumably a rather large addition” to NZX.

In today's announcement, Willis said that the government understands that institutional investors will require a clear option to sell any shares they buy before committing to an investment.

“If an initial public offering (IPO) is not approved at a later date, this could take the form of having an option for investors to sell their shares back to the Crown at an independently assessed fair value,” she said.

Willis also made it clear that she does expect to see improved competition in banking.

“Cabinet expects the major trading banks to work to deliver a fairer deal for bank users, including accelerating open banking, improving the payments NZ switching service and allowing greater comparison between home loans,” she said.

“The big banks are on notice. The government is explicitly leaving open the possibility of further action if we don't see enough progress.”

Tags: Kiwibank

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