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### Viewing cable 08WELLINGTON103, ONGOING SAGA OF THE SALE OF THE AUCKLAND AIRPORT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08WELLINGTON103 | 2008-03-19 18:06 | 2011-04-28 00:12 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Wellington

`

    VZCZCXRO9587
    RR RUEHNZ
    DE RUEHWL #0103/01 0791833
    ZNR UUUUU ZZH
    R 191833Z MAR 08
    FM AMEMBASSY WELLINGTON
    TO RUEHC/SECSTATE WASHDC 5151
    INFO RUEHNZ/AMCONSUL AUCKLAND 1638
    RUEHBY/AMEMBASSY CANBERRA 5144
    RUEHOT/AMEMBASSY OTTAWA 0325
    RUEATRS/DEPT OF TREASURY WASHDC
    RULSDMK/DEPT OF TRANSPORTATION WASHDC
    RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
    RUCPDOC/USDOC WASHDC 0216
    RHMFIUU/TSA HQ WASHINGTON DC

` `

    UNCLAS SECTION 01 OF 02 WELLINGTON 000103

    SIPDIS

    SIPDIS

    SENSITIVE

    STATE FOR EAP/ANP, EEB/TRA/OPT, WHA/CAN

    E.O. 12985:  N/A
    TAGS: EAIR EFIN ETRD ECON PREL PGOV NZ
    SUBJECT: ONGOING SAGA OF THE SALE OF THE AUCKLAND AIRPORT

    REF: 07 WELLINGTON 589

    ¶1.  (U) Summary. The perseverance of the Canada Pension Plan
    Investment Board (CPPIB) seemed to pay off last week when local
    shareholders of New Zealand's largest airport approved the CPPIB's
    NZ$1.8bn ($1.4bn) bid for a 40 percent stake in the Auckland
    International Airport (AIA), which handles 70 percent of the
    country's international air traffic.  Some 27,000 private investors
    voting in favour of the sale ignored outcries over foreign ownership
    by politicians and tendered more than the required shares needed
    (39.2 percent desired by CPPIB) by the Thursday (3/13) deadline.
    The rebuff by the private shareholders now puts the unenviable final
    decision squarely in the hands of the Labour Party's Associate
    Finance Minister and the Land Information Minister under rules
    recently enacted which were meant to forestall the inevitable.  The
    pressure on the government to come up with the "correct" decision
    will come to a head when the April 12 deadline on the bid lapses.
    End Summary.

    ¶2.  (U) Background. Labour came to power eight years ago promising
    an end to "asset sales," believing that the sale of state services
    to private shareholders had been the most unpopular element of the
    previous 15 years of economic reform.  It was careful, though, to
    avoid the logical extension of that promise - a buy-back of
    privatized companies.  Labour did, however, inherit an economy much
    stronger and more efficient because the privatization of former
    state assets exposed them to competition and share market reporting
    requirements.  Labour's polling continued to show that their
    supporters feared foreigners controlling key assets, so the
    Government kept its word by selling nothing of public concern nor
    did it consider re-nationalizing assets.  The near-collapse of Air
    New Zealand forced the Government to take an 80 percent stake in the
    airline in January 2002.  It also repurchased the railway, though
    not the rolling stock in September 2004.  More recently, the
    Government has been negotiating with the current rail operator, a
    subsidiary of Toll Holdings of Australia, to buy back the trains,
    not because it particularly wants to run a national railway but
    because it finds itself unable to recover the costs of maintaining
    the network from Toll New Zealand.  Finance Minister Michael Cullen
    says that if the state has to subsidize a private operator he would
    sooner "subsidize ourselves on behalf of the people of New
    Zealand."

    New Zealand Considers Selling AIA to Canadians
    --------------------------------------------- -

    ¶3.  (SBU) The saga of the sale of AIA began in June 2007 when Dubai
    Aerospace Enterprise (DAE) first offered to purchase a 60 percent
    share in the airport by offering a per-share price of NZ$3.80 (see
    reftel).  By September it was forced to withdraw its bid, saying the
    airport's management board had not done enough to promote the deal.
     Some commentators believe that DAE's strategy may have been flawed
    by relying too heavily on seeking approval primarily from the
    Auckland and Manukau City Councils.  Labour's Trade Minister, Phil
    Goff weighed in during the tender and expressed fears of foreign
    control of a key New Zealand asset.  Xenophobia prevailed and DAE
    withdrew its offer.  The CPPIB success to date has been attributed
    to their sheer tenacity.  Although CPPIB expressed initial interest
    in AIA in June 2007 along with DAE its per-share offering did mot
    match DAE was therefore relegated to second place.  With DAE out of
    the running, CPPIB's offer was reinvigorated.  Throughout the
    process they have managed to be accommodating and pragmatic and
    their perseverance may yet win out.  The Canadian High Commission
    informed Post it was neither engaged in discussions with the GNZ nor
    actively lobbying on CPPIB's behalf.  The Pension Fund is
    independently managed; therefore, all parties are treating the sale
    as a purely private sector issue and CPPIB has not sought the
    Canadian government's assistance.

    ¶4.  (U) During the course of the long public debate, the
    shareholders watched the market value of their holdings drop by as
    much as 25 percent (approx NZ$300 million) as politicians openly
    spared and expressed concern that the sale of the Auckland Airport
    to a foreign bidder would amount to a loss of a strategic national
    asset.  In the end, shareholders actually voted 57.7 percent in
    favour of the CPPIB which only required a 50 percent favourable vote
    for the offer to go forward.  The airport's two biggest
    shareholders, the Auckland and Manukau City Councils, which hold
    about 23 percent, both retained their stakes and voted against the
    bid.  A crucial turning point came on Tuesday (3/11) when a 3.3
    percent shareholder, Infratil Ltd (utility holding company) said it

    WELLINGTON 00000103  002 OF 002

    would sell.  The next largest shareholder, the New Zealand State
    Pension Fund with just over 6 percent, also accepted the offer.  The
    deal still has to be signed-off by the New Zealand government under
    the recently amended Overseas Investment Act (OIA) with a decision
    needed by April 12 or else the bid lapses.  The final decision will
    be made by Clayton Cosgrove, associate finance minister, and David
    Parker, the land information minister.  If the Government rejects
    the deal, CPPIB can seek a final review by a High Court judge.

    Shifting Focus Away from Labour's Policy
    ----------------------------------------

    ¶5.  (U) Prompted by the Labour Party's fears of foreign control of
    the AIA, Finance Minister Cullen rushed through an emergency
    initiative last week and passed a legislative amendment to the OIA,
    thereby limiting foreign ownership of "strategic" land assets to
    less than 25 per cent.  (Note: the government has been challenged to
    define "strategic" and list those assets that fit that definition
    but it has chosen to ignore the request. End note.)  The
    government's maneuver came as CPPIB took pains to distinguish itself
    from other sovereign wealth funds, whose enormous assets and huge
    appetite for acquisitions have raised protectionist alarm both in
    New Zealand and the U.S.  In answer to these fears, CPPIB lowered
    its voting rights (i.e., control) in the airport to 24.9 per cent,
    which it believes will meet the government's new foreign ownership
    cap.  If the deal passes this final test before the April 12
    deadline, CPPIB will then have to work co-operatively with the
    airport's management board and the city councils of Auckland and
    Manakau, which voted against the bid.

    ¶6.  (U) In a political face-saving tactic, Finance Minister Cullen
    accused National Party opposition leader, John Key of being "very
    slippery" on his stance toward the Government's move to protect
    Auckland Airport from foreign control.  Said Cullen, "there's no
    doubt in my mind that the New Zealand public believes that strategic
    assets should not pass into overseas control."  Mr. Key in turn
    accused Cullen of political opportunism and undermining confidence
    in New Zealand as an investment destination but Cullen seized on
    Key's comments, saying National would allow strategic assets to fall
    into foreign control.  Key defended the National Party's position by
    saying, "it would have issues over majority foreign ownership of
    Auckland Airport but we are more relaxed about minority ownership."
    Prime Minister Helen Clark added to the debate by suggesting Key had
    held a variety of positions on the issue and she wondered whether he
    thought it was good or bad if the OIA regulation (i.e., amendment)
    did not stop the buy out.  Key says it's hard to believe in the end
    that the two ministers will be independent when it comes time to
    make a decision despite the government already being dealt a slap in
    the face by the decision made by the Auckland Airport shareholders.
    Key believes the Auckland Airport deal looks set to end up in the
    courts.

    ¶7.  (SBU) Comment:  The government's sporadic insinuation in the AIA
    sale is seen by many as politically motivated.  As elections draw
    closer and the center-left Labour-led coalition continues to trail
    badly in the polls, they seem to be erratically reacting to public
    opposition to the Canadian bid.  Some analysts believe the
    government isn't ultimately concerned about the economic
    ramifications of the takeover but what effect the transaction will
    have on voters' perception of Labour's stewardship of "sensitive
    strategic assets."  Ultimately the government faces some discomfort
    as it had hoped to avoid responsibility by staving off the final
    decision but in the end this strategy backfired.  The government now
    must face making a decision that could be seen internationally as
    detrimental to attracting investment in New Zealand.  End comment.
    McCormick

`