Shaw James: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeShaw James: Oral Questions — Questions to Ministers[Sitting date: 07 April 2016. Volume:712;Page:10314. Text is incorporated into the Bound Volume.]4.JAMES SHAW (Co-Leader—Green) to the Minister of Finance: What estimates does he have of the cost to the Crown of repurchasing the New Zealand Superannuation Fund’s and ACC Fund’s shares in Kiwibank in 5 years’ time?Hon BILL ENGLISH (Minister of Finance): There are a number of incorrect assumptions in the question which I hope I can clarify. There is no automatic sale of the shares in 5 years’ time by the ACC or the Inland Revenue Department or the New Zealand Superannuation Fund. At some point they can exit their investment if they wish but they cannot do so within 5 years. If they do want to sell their shares after success in growing Kiwibank and increasing its value then of course they should be appropriately rewarded for that. But we cannot really predict at this stage how successful they will be in growing the value of the bank nor at what stage they would feel that they wanted to sell the shares. It could be in the 2030s or 2040s because that is how long those funds will be running.James Shaw: So when he said yesterday that once the 5-year limitation is released if the ACC fund or Superannuation Fund did want to sell their shares back to the Government and that he would exercise that option did he make that commitment without any idea what the cost of that would be to the Government?Hon BILL ENGLISH: We have some idea in that I suppose we would assume that under competent commercial management Kiwibank would be worth more than the valuation that has been put on it today—around the $500 million mark for 45 percent. But beyond that the undertaking by the Crown is not conditional. I mean we are absolutely clear: if there is a right of first refusal they do have to offer the shares to the Crown and this Government would buy them regardless of the price.James Shaw: Has he seen other estimates that put the likely cost of repurchasing Kiwibank at up to $1.1 billion; and if he was in that position would he buy back Kiwibank like he promised yesterday?Hon BILL ENGLISH: I hope the estimates turn out to underestimate the increase in value of the taxpayers’ investment in Kiwibank—the faster it grows the better for everybody. In answer to the member’s second question yes. We said yesterday that if the shares are offered to this Government—if we are the Government in 5 years’ time or 10 years’ time—then we will buy them and that remains the position today.James Shaw: What discount was applied to the valuation of Kiwibank when this proposal was made to sell a stake in it?Hon BILL ENGLISH: That is actually quite an interesting question because in the absence of putting Kiwibank out in the commercial market we do not really know what its commercial value truly is. So we work with the commercial valuation that was done by the board a couple years ago. The value that it is given now is less than that but as we learnt from the electricity companies it could be that neither of those valuations are what the market would be willing to pay. I personally suspect that the market would be willing to pay quite a lot more. The valuation for this transaction has been based on the earnings of the bank what is happening with Australian bank share prices and negotiation between the parties.James Shaw: Just to be clear is the Minister saying that the current $1.1 billion valuation does not represent Kiwibank’s full market value?Hon BILL ENGLISH: There would be only one way to find that out which the member would find quite unacceptable and that is to put it out in the market and see what they are willing to pay—that is the definition of market value. As I understand it there have been previous valuations of Kiwibank at up to $1.5 billion and this transaction is being carried out at the lower end of the valuation range.James Shaw: If the Superannuation Fund or ACC wants to sell its shares back to the Government once the 5-year restriction has lifted will the resale price of those shares be calculated on the same basis as the $1.1 billion valuation or on the basis of book value or on the basis of market value?Hon BILL ENGLISH: As we have said we cannot really apply market value because we do not know what that is but we would hope for some consistency I suppose between how it has been valued now and how it would be valued in the future. Because ACC and the New Zealand Superannuation Fund are driven by getting high returns naturally enough they are negotiating to try to get the current transaction price low. I imagine that if they come to sell it and the Government exercises its right to buy then they will try to get as much as they possibly can so that they can look good as fund managers. That is probably what is going to drive the process.David Seymour: Has the Minister experienced any feelings of curiosity regarding what the market value might have been?Hon BILL ENGLISH: No none whatsoever; not the slightest bit of curiosity.James Shaw: Why does he think that a future Government should have to buy back at least a billion dollars’ worth of shares as soon as 5 years from now just so that he can have $300 million to $350 million today?Hon BILL ENGLISH: The nature of this transaction is that a Government that wants to retain it in 100 percent ownership will have to do that but secondly it is the Government paying itself. This is really a transfer within Government and in that sense the value does not matter that much because we are doing business with ourselves and any unders or overs are balanced out by the other side of the transaction. In the long run what will matter most is that the bank is well-run that it has strong commercial drivers and that it satisfies its customers’ needs. This deal is well aligned with those objectives which will help the taxpayer in their investment and which will be good for the hundreds of thousands of customers of Kiwibank.Grant Robertson: What organisations independent of the Government if any provided advice on the valuation of Kiwibank that was in the announcement yesterday?Hon BILL ENGLISH: I cannot answer that question in detail. It has been a product of negotiation between New Zealand Post the Superannuation Fund and ACC. I presume they had some sort of advice but it comes down to the price that is acceptable to the parties. It is different from the process we went through with the electricity companies where the value was set by market demand for the shares.