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Budget confirms Meridian the next to float under mixed ownership model programme

Healthy domestic capital markets key to economic growth

The continuation of the mixed ownership model (MoM) programme will stimulate New Zealand’s capital markets and contribute to economic growth, according to Deloitte Corporate Finance Partner Andrew Hirst.

Today’s announcement that Meridian Energy will be the next initial public offering to proceed under the Government’s MoM programme, following on from the listing of Mighty River Power last week and despite a few hurdles in the process, is welcome news to domestic capital markets.

The Government has pointed to a number of benefits from the MoM, including greater efficiency and transparency on behalf of the SOEs being sold down, and raising $5-7 billion to pay down debt while freeing up capital for reinvestment in infrastructure.  This still appears to be on track after raising $1.7 billion from the Mighty River Power float and despite Solid Energy likely to drop out of the mix.

“But arguably the most important outcome from pursuing the programme is the much needed boost it will provide to our domestic capital markets, with total market capitalisation of the NZX expected to increase between 10 and 20 percent post the MoM programme,” says Mr Hirst.

Capital markets are a key determinant of New Zealand’s economic performance.  A healthy domestic capital market will provide another alternative investment avenue for savings other than residential housing and create less reliance on term deposits, bonds and international equities for both domestic private investors as well as the domestic fund managers, Kiwisaver, the NZ Super Fund, etc.

“The reality is that without completing the MoM programme through the partial sell-down of these SOEs, the New Zealand equity capital markets will continue to struggle for relevance and critical mass, making much needed economic growth harder to achieve,” concludes Mr Hirst.

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