The O'Brien Column: Distinction between Sealord and Radioworks incomprehensible

Friday 19th May 2000

Investors should be wary of the government's ad hoc, expedient approach to the free disposal of property rights and the question of foreign ownership of or foreign investment in New Zealand-domiciled assets.

A week after the government took the primary approval of the sale of Brierley Investments shares in Sealord away from the Overseas Investment Commission it did nothing about CanWest Radio New Zealand's raid on Radioworks and subsequent increase in its holding to more than 50%.

Deputy Prime Minister and Economic Development Minister Jim Anderton spoke out on the issue when he said the national interest rules he wants on foreign investment would not have allowed the transfer of ownership to an overseas-controlled group.

The apparent difference between the government's attitude to Sealord and to Radioworks was ironic and became more so when considered in the light of other aspects of the airwaves. Radio has become an issue on two fronts, apart from questions of local or overseas ownership. There has been a longstanding argument over the access of Maori interests to the spectrum, a matter that was being resolved this week. Local content on radio (and television) stations is another issue which the government has made noises about and could also be seen as partly tied into the Maori claim for part of the spectrum.

Government ministers and their spin doctors may see a distinction between overseas access to fishing quota through buying shares in a major fishing company and access to the airwaves through buying shares in commercial radio companies but the supposed difference would be beyond the comprehension of most of the public.

CanWest's move on Radioworks and the earlier sale of Radio New Zealand's commercial network to a consortium under the control of interests associated with Ireland's Tony O'Reilly have put the bulk of New Zealand's commercial radio into overseas hands and left local interests with government-owned Radio New Zealand.

A similar situation occurred in other sections of the media. We have, directly or indirectly, overseas ownership of television stations except Television New Zealand's two channels, most of the country's daily newspapers and a swag of magazines.

Most of the investing public probably have little concern with who owns what media outlets but should be concerned about anomalies in government policy.

It was noted in this column last week that too many people equated "foreign investment" with "foreign ownership" and that many deals the Overseas Investment Commission approved had little or nothing to do with the influx of new investment capital into the country. Those transactions involved the transfer of shares or other assets from one owner to another with a nil increase in investment from overseas.

That would be the situation if BIL's Sealord stake were sold to overseas interests, although there could be later inputs in terms of international marketing associations and advanced technology.

The CanWest acquisition of Radioworks did nothing to lift foreign investment in New Zealand, unless the group opens more stations and employs more people.

It was also noted last week that the distinction between ownership and investment was important for local equity investors who should be watching the debate and wondering whether the financial goalposts would be subject to regular change, depending on the whim of particular governments and their MMP coalition partners.

The goalposts were changed in the Sealord case and changed back in relation to the CanWest move on Radioworks.

Sealord was taken out of the Overseas Investment Commission's approval procedure but the commission approved CanWest's acquisition of control of Radioworks without government interference.

Although the government has an interest in what happens to fish resources under the quota system on behalf of the public, it has a more direct interest in Radioworks.

The government-owned TAB has 12% of Radioworks in association with its contract to have racing commentaries broadcast on Radio Pacific, part of the Radioworks network.

Government attitudes to the Sealord and Radioworks situations were the height of cavalier inconsistency, with the exception of Mr Anderton, who has been totally consistent in his calls for national interest criteria when considering overseas ownership/investment in New Zealand.

There is strong disagreement over the merits of Mr Anderton's arguments, but the public, including investors, cannot fault him on the consistency issue.

The Radioworks case reinforced the view that someone should set out clearly what can be sold and, as mentioned last week, what may be classified as "strategic" or "national interest" assets. Such a classification would leave a lot of people dissatisfied but they would know where the goalposts were placed and that they would not be shifted. The alternative is to forget about classifications and let anybody buy and/or sell anything.

The situation, as exemplified in Sealord and Radioworks, is farcically inconsistent and has the potential to disrupt commercial transactions, particularly on the sharemarket.

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