Brian Gaynor Blog

The latest Household Labour Force Survey demonstrates once again that the country’s population is aging rapidly and this is likely to have a major impact on economic activity in the decades ahead.

The following table shows the number of labour force participants in four age groups.

There has been a 12.9 per cent decrease in the number of labour force participants in the 15-24 age group and a huge increase in workers over 40, particularly in the 55-64 age group. These figures include all employed and unemployed workers.

The change has been particularly dramatic since 1996, when the first of the post-World War II baby boomers reached 50. In this 13 years since then the number of work force participants in the 40-64 group surged by 381,500 compared with a rise of just 24,700 for the 15-39 age group.

New Zealand employers are hanging onto older workers because they are more reliable, experienced and are willing to work for lower pay. In addition the majority of New Zealand companies are not growth orientated and, as a consequence, are less interested in younger, more ambitious employees.

This observation is backed up by the latest unemployment rates per age group, which are as follows;

Age 15-24            18.4% unemployment

Age 25-39              5.6%

Age 40-54              4.2%

Age 55-64              3.4%

The silver age has well and truly arrived in New Zealand yet there has been little planning for its consequences. For example what will happen when baby boomers retire en masse and where are we going to find the doctors and nurses to look after the aging population if most of our medical specialists have emigrated to Australia because of higher salaries across the Tasman?

Auckland International Airport shareholders have been treated much better than former Wilson & Horton shareholders who accepted securities rather than cash in the 1997 takeover.

These securities converted into shares in the Dublin based Independent News & Media (INM), where Tony O'Reilly has lost control as the company has struggled to survive.

On Monday 30 November last year INM mailed a prospectus to shareholders containing details and an application form for a 59 for 50 rights issue at €0.05 a share.

The prospectus, which was mailed from Dublin, didn’t reach New Zealand until the week beginning Monday 7 December. Most New Zealand shareholders were frustrated in their attempt to participate in the rights issue because they had to send a Euro cheque, the offer closed on Monday 14 December and the mail was particularly slow because of the pre-Christmas rush.

New Zealand investors were furious with the way they were treated and the issue’s tight timetable.

However they have not been disadvantaged because one of the conditions of the INM’s issue was that the company would sell rights that weren’t taken up and the proceeds would be returned to shareholders. New Zealand investors received €0.05 for every right not taken up and INM’s share price is currently only €0.10.

Thus New Zealand investors would have been no better off if they had got their application back to Dublin time.

Individual investors in Auckland International’s 1 for 16 rights issue at $1.65 a share do not have to accept the offer until 18 February. There will be no rights trading but entitlements not taken up will be sold through a book build with the proceeds returned to non-participating shareholders.

Individual investors are being offered a good deal, particularly as the institutional offer will be completed two weeks earlier and a post-issue share price will be established before retail investors have to make their decision.

The disappointing response to Fonterra's capital raising has increased the prospect of a sharemarket listing in the next few years.

The company raised a net $263.4 million with contributions of $270.7 million minus redemptions of $7.3 million.

The outcome compared with the Silver Fern Farms capital raising as follows;

- Silver Fern Farms rised $22.2 million last year out of a target of $128 million for a success rate of 17.3%

- Fonterra raised $263.4 million out of a target of $1,162 million for a success rate of 22.7%.

Chairman Sir Henry van der Heyden put a positive spin on Fonterra's capital raising but the truth of the matter is that the response was disappointing. The company would have hoped to raise at least $400 million or a third of what it was after.

Sir Henry said that farmers will have another opportunity to buy shares in the middle of the year but if the company wants to be a success on the world scene it will have to raise more capital than farmers seem willing to subscribe. The days when companies could rely on debt funded expansion is over.

A large number of non-farming New Zealand interests would be interested in contributing  capital to Fonterra but they will be reluctant to do so unless there is a secondary market where shares can be traded and a true market value for these is established.

This is why a sharemarket listing for Fonterra is inevitable if farmer shareholders are unwilling to front up with more capital.

The expected announcement that Airwork will list on the ASX is another clear indication that New Zealand is a capitalist economy that is woefully short of capital. Airwork’s move follows the cancellation of the Synlait and DNZ Property Fund IPOs, problems with the BioVittoria IPO and Australian investors ending up with nearly 90% of Kathmandu.

New Zealand’s problem is best summed up in a recent graph produced by BNZ’s economic team. 

New Zealand’s saving rate slipped from minus 11.0% of disposal income in the March 2008 year to minus 13.7% in the latest year. We rank well behind other OECD countries as far as household savings are concerns and this is one of the main reasons why our companies have to go to Australia to raise new capital.

Airwork was listed on the NZX in the 1970s but was delisted in the early 1980s following a typical Brierley Investment deal that resulted in Kidd Garrett acquiring Airwork’s listing.

Australian media sources report that Airwork will list on the ASX early next year and will be valued at approximately A$350 million.

Our pathetic savings rate is forcing more and more New Zealand companies across the Tasman in order to acquire equity funding.

Fonterra’s capital raising will be a major test of farmers support for the co-operative.

The company is effectively having a one for five issue at $4.52 a share as farmer shareholders may purchase up to 120% of their current entitlement. Thus the capital raising has the potential to bring in $1,162 million based on the co-operative’s current capital of 1,285 million shares.

In the first eleven months of the year NZX listed companies raised a total of $3,170 million of new equity but a large percentage of this was contributed by offshore and institutional investors.

Silver Fern Farms raised only $22.2 million, compared with its target of $128 million, and those shares are now trading at a 41% discount (after adjusting for a 1:4 bonus issue) to the issue price on the Unlisted share trading facility.

Fonterra will be doing well if it raises $400 million or approximately one/third of the potential $1,162 million.

If the farmer uptake is low then the company will have to look to other sources for equity capital.