The explanation from the government is one I look forward to. My pick is that if it is done for straightforward (non-fishy) plain old ideological reasons, the relevant minister will announce it. If it is mired in vested interests etc then “that nice man Mr Key” will announce it.

This particular act to block the sale of an asset is much more concerning than the AIA case. Whereas the motivations of the previous government were pretty easy to understand (and disagree with if you are not of the same bent), the line of reasoning here is much harder to pick.

First, the AIA stake was owned by a NZ owned firm and the contract for sale was to a Canadian firm. If one favours NZ ownership of ‘strategic assets’ this fits well. More complexly, the previous government had been jawboning about AIA fees for some time, which had the effect of keeping charges somewhat lower due to the implicit threat of regulation (AIA really were extracting super profits). By allowing a sale at the kind of price that had been agreed the government would have been implicitly endorsing this valuation. To then regulate would have sent very bad signals to overseas investors. In a sense, the government, by blocking the deal, was able to retain its ability to regulate this strategic monopoly in the future.

Compare this to the current situation. The firm is not a monopoly, not essential infrastructure, and the product is open to international competition. Both the buyer and the seller are international firms, and neither should be particularly favoured as purchaser. However by blocking the contract the purchaser benefits, since following the agreement international steel prices have fallen substantially and it is clear that Cheung Kong Infrastructure would be paying too much. Not surprisingly, Bluescope (the intended seller) is looking at legal options, whereas Cheung Kong is happy enough with the government’s actions. Compare this to the AIA case where the buyer was most displeased.

So why would the government do this? The OIO says that the current international economic situation has made it no longer viable for Cheung Kong Investments (CKI) to expand the business as previously planned when making the bid, and thus it is no longer in the national interest. This is baloney because the same incentive changes due to the international economic situation also apply to Bluescope as owner.

I do note that the government had previously allowed CKI to purchase the Wellington electricity netwrok from (New Zealand owned) company Vector for $785 million – a strategic asset by any measure. Presumably their plans to invest stacks of money in a range of infrastructure investments made them a ‘good’ fit for the government. With the new governments plans to invest a hang of a lot more in infrastructure, keeping on good terms with CKI is probably something that they want. Allowing them a way out of this now loss-making acquisition ex post signing the contract is likely to do this. Perhaps CKI even threatened to pull some of that investment capital if they didn’t get their way. I know that National is ideologically driven to look everywhere and anywhere for sources of infrastructure capital (a publicly known example is the 40% requirement for the NZ Super Fund to be invested domestically – outrageous!) and CKI with tens of billions of dollars is probably a firm that they want to get sweet with (or may already be).

The whole thing stinks to high hell.

Okay, enough stirring from me.