Government has no desire to own stakes in big firms but wants to 'keep options on table'

Tuesday, 7 April 2020

Finance Minister Grant Robertson has indicated the Government has no agenda use coronavirus aid to promote more state ownership of private sector firms.

Finance Minister Grant Robertson is not ruling out the possibility that the Government could end up owning stakes in large businesses as a result of coronavirus bail-outs, but says that is not its first preference.

The Government established a team within the Treasury last week to consider providing aid on a case-by-case basis to some of the 2189 New Zealand companies that have annual revenues of more than $80 million.

Recipients would need to show they needed help because of the pandemic.

So far the only assistance that is known to have been provided through the scheme is a two-year loan of up to $900 million for Air New Zealand, which the Government could convert into additional shares in the airline were Air New Zealand to default on the loan.

However, it is understood that talks are already taking place with a number of other large firms.

The $900m Air NZ bail-out has set a precedent for deals that could see the Government emerge as a shareholder in other large firms.

* $6.25b Government-backed loan scheme designed to see more firms through crisis

* Air New Zealand proposes to make 387 pilots redundant, union says**

Companies of any size that have been impacted by the pandemic can potentially access wage subsidies, while businesses with a turnover of less than $80m may be able to access government-backed loans of up to $500,000 through their bank.

Speaking to Newstalk ZB, Robertson said help for other large businesses could be structured as convertible loans, meaning the Government could end up becoming a shareholder in those businesses.

But the Government's preference was to provide help through bridging loans and 'commercial loans', he said.

'These are companies that should be able to trade on their own and we have no particular desire to own parts of them.

'But we want to keep options on the table around what particular type of financing arrangement we might be part of, so potentially there could be the kind of convertible loan type arrangement.'

Details have begun trickling through of some of the businesses that have so far applied for more than $6 billion of wage subsidies from the Government.

Robertson expected between $9b and $10b would be claimed in total under the scheme in subsidies, depending on deliberations by big businesses, providing more surety of employment for 'well over' a million employees.

The majority of the subsidies that have paid out so far appear to be to small and medium-sized businesses, according to a searchable online database provided by the Social Development Ministry.

But a number of larger firms are known to be in the process of considering claims.

Television channel Three owner MediaWorks has claimed $3.6 million in wage subsidies.

Robertson said the Social Development Ministry would release more details on the number of lay-offs in the economy on Thursday, and there was no doubt they would be in the 'thousands'.

Robertson also provided more information on a planned law change announced on Friday that would provide some protection for company directors who decided to let their struggling businesses trade through the crisis, rather than play it safe and declare them insolvent.

That initiative was announced alongside a new rule that will allow businesses to delay paying their business debts for six months if more than half of their creditors, by number and the total value of their claims, agreed.

Directors could be shielded from their liabilities under insolvency law if their businesses were trading satisfactorily at the end of December and they had a 'conceivable plan' to pay any debts and re-emerge as a going concern over the next 18 months, he said.

Directors would still have a duty to be upfront about the state of their businesses, he indicated.

'The really important thing is there needs to be conversations between companies and their creditors to make sure the creditors know what is going on.'

Bell Gully lawyer Tim Smith said drafting a law to allow businesses to put their debts into hibernation for six months would require a careful balancing act.

'You want to be protecting businesses in so far as you can, but you want to be considering the needs of creditors as well because obviously there is a chain of these creditors,' he said.