In October 2016, the Fund acquired a partial stake in Kiwi Group Holdings Limited, Kiwibank’s holding company. The deal saw the Fund pay NZ263m to take a 25% stake in Kiwibank, with co-investor ACC taking 22%. NZ Post retains a 53% majority shareholding.
Why did we invest?
Investing in Kiwibank is consistent with our long-standing investment strategy to target transactions of scale in the New Zealand market. With Kiwibank, we were able to use the Fund’s unique endowments, including a long-term investment horizon, sovereign status, and ready access to capital, to leverage our preferred partner status and attain the stake at an attractive price.
Investing in Kiwibank gives the Fund direct exposure to the New Zealand banking sector, a sector characterised by high profitability and favourable industry economics. Since its inception in 2002 Kiwibank has grown quickly to occupy a competitive market position within the industry, capitalising on a point of difference as a 100% New Zealand owned and operated alternative. Its strong brand, highly engaged team and publicly-recognised value proposition has seen the company grow its market share to 12%, with a customer base in excess of 1 million.
We believe our investment will offer long-term benefits to Kiwibank. As an active investor, we intend to use our significant investment and financial expertise, along with our ongoing commitment to best practice Environmental, Social and Governance (ESG) management to continue Kiwibank’s growth and help it achieve its long-term promise. We are also confident that in ACC and NZ Post, we will be working with like-minded organisations with compatible values and a similar, long-term investment approach.
We have appointed Kevin Malloy to the Kiwibank Board. Mr Malloy has had an extensive career in New Zealand and overseas, including 29 years with global media agency Starcom in roles including Global Client Director for both Coca-Cola and P&G. Mr Malloy is currently on the boards of TVNZ, the Halberg Trust, the Graeme Dingle Foundation and St Peter’s College Auckland.
Is NZSF able to sell its stake in Kiwibank?
ACC and NZSF are not able to sell outside the existing circle of shareholders for a period of five years from October 2016. After that point, if we do wish to sell, the government has the option to buy the shares before they are offered to any third parties.
Regulatory capital is the amount of capital a bank is required to hold by its financial regulator. In New Zealand, this regulator is the Reserve Bank of New Zealand. In April 2017, following a preliminary view from the Reserve Bank that two capital instruments issued by Kiwibank no longer qualified as regulatory capital under their Capital Adequacy Framework, the Fund, together with ACC and NZ Post, pre-emptively injected NZD247m of common equity into Kiwibank. The Fund’s share of this contribution was 25%, in line with its shareholding in the company. The capital injection ensured that Kiwibank’s capital position would be maintained regardless of the Reserve Bank’s final decision on the matter. Kiwibank made some changes to address the Reserve Bank’s concerns. In August 2017 the Reserve Bank advised it had no objection to the capital investments as modified and that these investments qualified as regulatory capital. Any capital return to shareholders is a decision for the Kiwibank Board, which is continually assessing the bank’s current and future capital requirements.
In June, the Guardians and ACC made a joint submission on the Reserve Bank’s issues paper: Review of the Capital Adequacy Framework for Locally Incorporated Banks.
A copy of this submission is available on our website.Download the case study (PDF 555KB)