What rescue might look like for biggest NZ firms
A total of 2189 Kiwi businesses have annual revenues in excess of $80 million, Statistics NZ has calculated for Stuff.
That is the cut-off for ‘‘tailor-made’’ assistance that Finance Minister Grant Robertson has promised on a case-bycase basis to larger firms suffering from the coronavirus pandemic.
The price for such assistance for some firms may be that they accept the risk that they may end up partly in state ownership. Tailored assistance for larger firms is the third main leg in the Government’s plan to help businesses through the crisis.
Separately, all companies that can show a 30 per cent monthly drop in revenues, attributable to the pandemic, are entitled to claim wage subsidies from the Ministry of Social Development.
Small and medium-sized firms with an annual turnover of $250,000-$80m are also potentially eligible for governmentbacked loans of up to $500,000 to help them during the crisis.
In theory, at least, the Government has secured a decent amount of headroom for bail-outs of bigger businesses.
Last week, Parliament passed a bill allowing the Government to spend up to $52 billion on the response to the pandemic without going back to MPs for further approvals. It is understood about half of that sum – just over $25b – has been committed to the myriad initiatives announced to date.
However, there is only one solid clue as to what the scale of assistance to large firms might be or in what ways it may be provided.
Negotiations are understood to be taking place with several companies that have sought help. But, to date, the only bespoke assistance that has been confirmed is for Air NZ, in the form of a $900m government loan that has some quite hard-nosed terms.
The interest payable on that loan has been set on a sliding scale between 7 and 10 per cent, depending on how much of the facility is drawn down and when the money is paid back.
The loan also required the airline to shelve its planned 11 cent-per-share dividend to shareholders, and all future dividends while the facility is in place.
The loan is only for two years. And if Air NZ cannot pay back the money, the Government will be able to either force it to raise the necessary capital from its shareholders or – perhaps more realistically – allow the Government to directly convert the debt into equity.
The latter outcome could massively dilute the stake held in the airline by its non-government shareholders. If much of the tailor-made assistance offered by the Government to large firms is structured in a similar way to the Air NZ deal, that raises the prospect the Government could emerge as a shareholder in dozens or even hundreds of more hardhit large firms that limp through the crisis, over the next few years.
Oliver Hartwich, executive director of the NZ Initiative think-tank, notes that was what happened to some businesses, such as banks, that were bailed out by European governments during the global financial crisis.
It would also be deja vu for Air NZ, which has been majority-owned by the Government since it was bailed out in 2001 from its disastrous purchase of Ansett and foray into Australia.
‘‘It is not desirable to keep these shareholdings in the long run and what governments should then do is to start privatising them again,’’ Hartwich says.