Stronger circle of Crown owners proposed for Kiwibank
The Crown’s two major investment funds, the New Zealand Superannuation Fund and the Accident Compensation Corporation (ACC), may soon join New Zealand Post as the owners of Kiwi Group Holdings (KGH) Limited.
New Zealand Post Group Chairman Sir Michael Cullen announced today that New Zealand Post has received an indicative offer from the NZ Super Fund and ACC to purchase 25% and 20% respectively of Kiwi Group Holdings Limited. The indicative offer, which is subject to a number of matters including due diligence, has been priced on a commercial basis, and reflects the Government’s absolute position that Kiwibank must remain in public ownership. The offer is based on valuing KGH at $1.1 billion, which would mean New Zealand Post receiving $495 million.
KGH is the company that owns Kiwibank and its associated businesses such as Kiwi Wealth Management and Kiwi Insurance.
Sir Michael said that “no deal has been finalised yet and it will take some weeks for a process to be worked through, however we wanted to be proactive in our disclosure”.
Sir Michael said: “New Zealand Post approached the Government and pursued the initiative because it considers that NZ Super Fund and ACC are strong potential shareholders for Kiwibank as a Crown-owned bank. The two investment funds hold assets of over $60 billion between them, while New Zealand Post continues to face headwinds in its core mail business.”
There are various conditions to be met before the proposed transaction can proceed including due diligence, transaction documentation, board approvals and regulatory approval. It is intended that the transaction be completed by the end of New Zealand Post Group’s current financial year.
Sir Michael said the New Zealand Post Board believes that securing an agreement with these two Crown investors – both essential parts of the New Zealand fabric – would be of significant long term benefit to Kiwibank.
“The sovereign-status NZ Super Fund and ACC are proven public sector investors. Their long-term investment horizons, expertise and access to capital would complement New Zealand Post as a shareholder and support the ongoing development of Kiwibank.”
Sir Michael said New Zealand Post has provided approximately $400 million of capital to Kiwibank over its lifetime. “We believe now is the right time to broaden the bank’s support base within the wider public sector, and this provides the NZ Super Fund and ACC with a rare opportunity to secure a significant minority stake in a large and well-performing unlisted New Zealand business.”
The proceeds would allow New Zealand Post to invest in its core parcels, packages and letters business and pay down debt. It is anticipated that a special dividend would also be paid to the Crown, Sir Michael said.
In terms of other matters to be disclosed, it should be noted that in the process of considering the possible transaction it has become clear to the New Zealand Post Board that, in any event, the future of the New Zealand Post guarantee of Kiwibank’s payment obligations will need to be addressed, he said.
"At the time of completing the transaction, New Zealand Post would give not less than three months notice to remove the guarantee. This change would not apply to obligations incurred prior to the date of termination, only future obligations."
Fact File and Q and As
- Kiwi Group Holdings Limited will remain 100% Crown-owned
- Kiwi Group Holdings Limited is the holding company of Kiwibank Limited, Kiwi Wealth Management, The New Zealand Home Loan Company Limited, Kiwi Insurance Limited and Kiwi Capital Funding Limited
- It is proposed that NZ Post would retain 55% of Kiwi Group Holdings
- It is proposed that NZ Super Fund would own 25% of Kiwi Group Holdings
- NZ Super Fund has $28 billion of funds currently under management
- It is proposed that ACC would own 20% of Kiwi Group Holdings
- ACC has $32 billion of funds currently under management
- Kiwibank has been operating for more than 14 years and has a combined loan and deposit book exceeding $38 billion
- Kiwibank has nearly a million customers, about half a million have Kiwibank as their main bank
- Kiwi Group Holdings produced a profit of $132 million in the year to June 2015
What are the next steps?
The parties will now progress steps to advance the potential transaction, with the intention of completing transaction documentation and a sale by 30 June 2016.
What sale price has been agreed for the shareholding?
The NZ Super Fund and ACC have negotiated a purchase price with New Zealand Post based on a valuation of Kiwi Group Holdings Ltd of $1.1 billion. This equates to a price of $495 million for a 45% share of the company. The valuation reflects the Government’s non-negotiable position that Kiwibank remains 100% owned by the Crown. The price also reflects other factors such as the minority shareholding that is proposed to be acquired. The final price is subject to a range of matters including full due diligence.
Does Kiwibank require access to alternative streams of capital?
In line with Kiwibank’s existing strategy and although it self-generates capital, it is anticipated that over time the bank may require additional capital to grow its product and service offering, for example by broadening its wealth and insurance business and growing its small to medium business customer base.
Is there expected to be an impact on New Zealand Post’s and Kiwibank’s credit rating following this announcement?
There is no expected impact on New Zealand Post's credit rating. Kiwibank's credit rating agencies have been consulted and will be issuing statements in due course in connection with this announcement.
Standard & Poor's has indicated that following the announcement of the proposed transaction, Kiwibank's long term issuer credit rating (A+) will be placed on credit watch negative pending the proposed termination of the standing guarantee provided by NZ Post. Should the guarantee be terminated, Standard & Poor's has indicated it will result in a one notch downgrade to Kiwibank's long term issuer credit rating (from A+ to A).
Could the NZ Super Fund and ACC sell to overseas investors?
The Government’s stated policy is that Kiwibank remains 100% Crown owned. Under the proposed agreement, the Government would have a pre-emptive right to buy shares that either the NZ Super Fund or ACC wished to sell. In any event, the two parties cannot sell outside the existing shareholder base within the first five years.
What are NZ Post’s long-term intentions?
New Zealand Post will continue to be a Kiwibank owner and support the bank’s strategy. The NZ Super Fund and ACC may become larger shareholders through capital investment over time, including the reinvestment of dividends. This would result in a dilution of the New Zealand Post shareholding.
Is this a good decision for the New Zealand Post business?
The New Zealand Post Board firmly believes the proposed transaction would be good for both New Zealand Post and Kiwibank (and its associated companies).
The NZ Super Fund and ACC have the expertise and access to capital that would complement New Zealand Post as a shareholder. New Zealand Post’s provision of capital for Kiwibank has been achieved through the raising of debt, and New Zealand Post is no longer in a position to provide further capital.
A successful transaction would allow New Zealand Post to pay down debt as well as provide it with access to additional capital to invest in the long term sustainability of the mail and logistics business. It is also envisaged that a special dividend will be paid to the Government.
Is this a NZ Super Fund-ACC joint venture?
No. The NZ Super Fund and ACC have separate mandates but similar approaches to long term investment returns. They would become co-investors alongside New Zealand Post.
Initial shareholdings would be NZ Super Fund owning 25% and ACC owning 20%.
What if the NZ Super Fund and ACC are not satisfied with the results from the due diligence?
Depending on the issues that may arise, there may be a re-negotiation of price or other terms or the transaction may simply not proceed.
New Zealand Post remains a committed owner of Kiwibank regardless of the involvement of the NZ Super Fund and ACC, and will continue to support the bank’s strategy.
What amount of dividend will be paid to the Crown if the transaction proceeds?
Any dividend payment to the Crown will be determined by a combination of factors including the sale price; the repayment of debt acquired by New Zealand Post for the provision of capital to Kiwibank; discussion on New Zealand Post’s ongoing capital requirements and associated credit rating impact; and any proceeds that may be invested in new equity in Kiwibank.
Who initiated discussions?
Following various discussions with the NZ Super Fund and ACC, the New Zealand Post Group Chair and CEO approached the Government in 2014 for permission to explore an introduction to the bank of third party capital from within the Crown-owned entities. Active discussions were initiated by New Zealand Post in early 2015.