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5302.0 - Balance of Payments and International Investment Position, Australia, Sep 2006  
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FEATURE ARTICLE: FOREIGN OWNERSHIP OF EQUITY


INTRODUCTION

This article updates the analysis of foreign ownership of Australian equity presented in the December quarter 2005 issue of Balance of Payments and International Investment Position, Australia (cat. no. 5302.0). The data presented here are sourced from:

  • for rest of world holdings of Australian equity, Table 29 of the September quarter Balance of Payments and International Investment Position, Australia (cat. no. 5302.0) and more detailed data underlying the published aggregates; and
  • for total and sectoral aggregates of Australian equity on issue, Tables 40 and 41 of the June quarter 2006 issue of Australian National Accounts: Financial Accounts (cat. no. 5232.0). In calculating equity on issue, the rest of the world component was removed.

A brief explanation of how the financial accounts can be used to derive estimates of foreign ownership of equity in Australian enterprise groups is provided below. For a more detailed explanation, see the article Foreign Ownership of Equity in Australian Enterprise Groups published in the June quarter 1992 issue of International Investment Position, Australia (cat. no. 5306.0) which is also available on this web site. That article also explains the relationship between these measures and measures derived from earlier foreign participation studies.


The data cover financial instruments classified as equity, which are mainly listed and unlisted shares and units in trusts. Instruments convertible to equity, such as convertible notes, are not treated as equity until converted. Ownership of property by non-residents and ownership of Australian branches of foreign companies are also treated as equity for the purposes of these statistics. The data for amounts on issue for each sub-sector are consolidated by excluding amounts held by related companies in the same sub-sector. Market valuations are used where possible; for the cases where market values are not available, net asset value (total assets less non-equity liabilities and less the paid up value of non-voting shares) has been used as a proxy. A non-resident is defined as any individual, enterprise or other organisation ordinarily domiciled in a country other than Australia. For further definitions of the concepts and methods employed in compiling the source data see the publications Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0) and Australian National Accounts: Financial Accounts (cat. no. 5232.0) which are also available on this web site.


By expressing the value of equity issued by a particular sector and held by the rest of world (non-residents) as a percentage of the total value of all equity issued by that sector, it is possible to derive an estimate of the percentage of foreign ownership in that sector. For example, at 30 June 2006, equity held by 'rest of world' in Australian banks was $62.8b, or 24% of the total equity of $261.9b issued by Australian banks. Likewise, an estimate of total foreign ownership of equity in all Australian enterprises can be derived by summing the equity held by non-residents across all sectors and dividing this by the total value of equity issued by all sectors. Estimates of foreign ownership by sector are shown in Table 1.

TABLE 1 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS(a), Value of Equity Outstanding at End of Period

2002-03
2003-04
Sep Qtr
2004
Dec Qtr
2004
Mar Qtr
2005
Jun Qtr
2005
Sep Qtr
2005
Dec Qtr
2005
Mar Qtr
2006
Jun Qtr
2006

All sectors
Amount issued ($b)
1 201.3
1 411.8
1 455.0
1 569.9
1 604.8
1 552.0
1 676.8
1 726.0
1 845.9
1 859.3
Amount held by rest of world ($b)
363.0
431.8
437.8
473.8
482.1
421.4
450.5
470.6
500.0
502.1
Foreign ownership (%)
30.2
30.6
30.1
30.2
30.0
27.2
26.9
27.3
27.1
27.0
Sectoral Components
Non-Financial Corporations(b)
Amount issued ($b)
774.0
931.3
965.9
1 040.6
1 063.1
982.9
1 064.4
1 092.1
1 163.2
1 172.0
Amount held by rest of world ($b)
275.0
329.9
335.6
364.2
368.7
302.1
324.5
340.7
361.0
365.0
Foreign ownership (%)
35.5
35.4
34.7
35.0
34.7
30.7
30.5
31.2
31.0
31.1
Banks
Amount issued ($b)
180.9
189.2
185.6
203.8
207.3
223.5
240.7
249.0
267.8
261.9
Amount held by rest of world ($b)
46.8
48.6
45.5
50.7
51.9
55.2
59.6
61.1
65.0
62.8
Foreign ownership (%)
25.9
25.7
24.5
24.9
25.0
24.7
24.8
24.5
24.3
24.0
Non-bank deposit taking institutions
Amount issued ($b)
34.2
37.1
38.1
37.7
37.9
39.4
38.4
38.9
39.5
42.2
Amount held by rest of world ($b)
7.4
12.5
13.1
12.7
12.9
13.6
13.8
13.9
13.9
14.2
Foreign ownership (%)
21.6
33.7
34.4
33.7
34.0
34.5
35.9
35.7
35.2
33.6
Other financial sub-sectors(c)
Amount issued ($b)
200.5
241.6
254.3
276.8
285.6
295.0
323.1
334.8
362.7
370.6
Amount held by rest of world ($b)
33.8
40.9
43.6
46.2
48.6
50.4
52.6
54.8
60.1
60.0
Foreign ownership (%)
16.9
16.9
17.1
16.7
17.0
17.1
16.3
16.4
16.6
16.2
Central Bank(d)
Amount issued ($b)
11.7
12.5
11.2
10.9
10.8
11.2
10.1
11.3
12.7
12.7

(a) Equity includes units in trusts.
(b) Includes private non-financial corporations; and national, state and local public non-financial corporations.
(c) Includes life and other insurance corporations; central borrowing authorities; and other financial institutions.
(d) There is no foreign ownership in this sub-sector.



ANALYSIS OF RESULTS

Table 1 shows that the value of equity on issue by Australian enterprise groups at 30 June 2006 stood at $1,859.3b. Of this total, 63% related to shares or similar equity interests issued by non-financial corporations. Other financial sub-sectors, including life and other insurance corporations and central borrowing authorities accounted for 20%; banks accounted for a further 14% of total equity issued; while lesser amounts were issued by 'non-bank deposit taking institutions' 2%; and the Central Bank 1%.


Of the total equity on issue at 30 June 2006, non-residents held equity valued at $502.1b (27%), while residents held $1,357.2b (73%).


The total value of equity on issue increased by 20% from $1,552.0b to $1,859.3b from 30 June 2005 to 30 June 2006. The main quarter in which the increase occurred was the September quarter 2005, when the value of equity on issue increased by $124.8b (8%). This increase was driven by the non-financial corporations which rose $81.5b (8%), other financial sub-sectors which rose $28.1b (10%) and banks which rose $17.2b (8%).


The data in table one demonstrates a steady increase in the value of equity on issue in Australia, this is consistent with the reported performance of the Australian stockmarket. During the June quarter 2005 a decrease in the value of Australian equity on issue resulted from significant corporate restructures which impacted on the total level of Australian equity on issue, and the amount of Australian equity held by non-residents. This restructuring had the effect of decreasing the proportion of foreign participation.

FOREIGN OWNERSHIP OF AUSTRALIAN ENTERPRISE GROUP BY SECTOR
Graph: Foreign ownership of Australian Enterprise Group by sector




COUNTRY ANALYSIS

As shown in Table 2 below, the value of holdings of equity in Australian enterprise groups by non-residents can also be further disaggregated according to the country of residence of the immediate holder. This disaggregation has been done as at the end of each financial year.

TABLE 2 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS, by Non-residents(a)

30 June 2004
30 June 2005
30 June 2006
Geographical location of immediate investor by Sector/Country/Country groups
$b
(%)
$b
(%)
$b
(%)

All sectors
431.8
100
421.4
100
502.1
100
United Kingdom
118.2
27
117.0
28
145.2
29
United States of America
147.5
34
131.2
31
161.1
32
Japan
18.1
4
22.8
5
26.6
5
Other countries(b)
148.0
34
150.4
36
169.2
34
OECD
353.6
82
347.6
82
416.7
83
APEC
201.7
47
191.8
46
228.4
45
EU
157.4
39
161.1
38
194.3
39
ASEAN
8.2
2
11.0
3
13.0
3
Sectoral components(c)
Non-financial corporations(d)
329.9
100
302.1
100
365.0
100
United Kingdom
88.7
27
82.1
27
104.7
29
United States of America
113.8
34
88.6
29
110.9
30
Japan
15.5
5
20.1
7
24.0
7
Other countries(b)
111.9
33
111.3
37
125.4
34
Banks
48.6
100
55.2
100
62.8
100
United Kingdom
23.0
47
25.8
47
29.5
47
United States of America
15.5
32
17.4
32
19.7
31
Japan
0.8
2
0.8
1
0.8
1
Other countries(b)
9.3
19
11.2
20
12.8
20
Non-bank deposit taking institutions
12.5
100
13.6
100
14.2
100
United Kingdom
0.2
2
0.3
2
0.4
3
United States of America
6.8
54
9.2
68
10.1
71
Japan
0.9
7
1.0
7
0.9
6
Other countries(b)
4.6
37
3.1
23
2.8
20
Other financial sub-sectors(e)
40.9
100
50.4
100
60.0
100
United Kingdom
6.4
16
8.8
17
10.6
18
United States of America
11.5
28
16.0
32
20.3
34
Japan
0.8
2
0.8
2
0.8
1
Other countries(b)
22.2
54
24.8
49
28.3
47

(a) Total equity held by non-residents, includes direct and portfolio equity investment.
(b) Includes unspecified and all other countries.
(c) Data for Reserve Bank are not shown, as there is no foreign ownership in this sub-sector.
(d) Includes private non-financial corporations; and national, state and local public non-financial corporations.
(e) Includes life and other insurance corporations; central borrowing authorities; and other financial institutions.


The residents of the United States of America (USA), United Kingdom (UK) and Japan hold the largest proportions of foreign-owned Australian equity on issue. At 30 June 2006, USA residents owned $161.1b (32%) of the foreign-owned equity in Australian enterprise groups, accounting for 9% of total equity on issue. At the same time, UK residents owned $145.2b (29%) of the foreign equity holdings in Australian enterprise groups, while residents of Japan owned a further $26.6b (5%). The UK and Japanese holdings accounted for 8% and 1%, respectively, of total equity on issue.


The proportion of ownership of total non-resident equity in Australia held by residents of each of these countries varies significantly by sector. For example, at 30 June 2006, residents of the UK owned 47% of the total non-resident equity investment in Australian banks, and hold 3% in non-bank deposit taking institutions. Residents of the USA dominate the foreign ownership of equity in non-bank deposit taking institutions 71%, but hold less equity in banks than UK residents 3%. While residents of Japan owned 6% of the total non-resident equity investment in non-bank deposit taking institutions at 30 June 2006, their participation rates in the banks and other financial sub-sectors were relatively small.


Residents of APEC economies accounted for $228.4b (45%) of foreign-owned equity in Australian enterprise groups at 30 June 2006, while residents of EU countries accounted for $194.3b (39%). The holdings of residents of APEC and EU countries accounted for 12% and 10% respectively of the total equity on issue. The holdings of residents of OECD member countries amounted to $416.7b, which accounted for 83% of total foreign-owned equity and 22% of total equity on issue.

TABLE 3 FOREIGN EQUITY HOLDINGS, by Degree of Foreign Influence and Type of Equity - at 30 June 2006

DIRECT INVESTMENT ENTERPRISE GROUPS
OTHER ENTERPRISE GROUPS
ALL ENTERPRISE GROUPS
10-50 percent owned by direct foreign investors
Over 50% owned by direct foreign investors
Equity held by rest of world
Direct
Portfolio
Total
Direct
Portfolio
Total
Total
Direct
Portfolio
Total

$ billion

All sectors
26.6
1.9
28.5
213.3
0.4
213.8
259.7
240.0
262.1
502.1
Sectoral components
Non-financial corporations
21.1
1.2
22.4
177.9
0.4
178.4
164.3
199.1
166.0
365.0
Banks
-
-
-
6.8
-
6.8
56.0
6.8
56.0
62.8
Non-bank deposit taking institutions
-
-
-
14.2
-
14.2
-
14.2
-
14.2
Other financial sub-sectors
5.5
0.7
6.2
14.4
-
14.4
39.5
19.9
40.1
60.0

Percentage

All sectors
Proportion of total equity on issue
1
-
2
11
-
11
14
13
14
27
Proportion of total equity held by rest of world
5
-
6
42
-
43
52
48
52
100

- nil or rounded to zero (including null cells)



SIGNIFICANT FOREIGN INFLUENCE

Direct investment is defined as capital invested in an enterprise by an investor who exerts a significant influence, either actually or potentially, over the key policies of the enterprise (called a direct investment enterprise). Ownership of 10% or more of the voting shares (or an equivalent equity interest) is regarded as indicative of significant influence by an investor.


Three enterprise group dissections are shown in Table 3 and these can be associated with three different levels of foreign influence:


Foreign control - direct investment enterprise groups over 50% owned by a direct foreign investor. The level of ownership is sufficient to allow foreign control.


Significant influence - direct investment enterprise groups 10% to 50% owned by their direct foreign investors. The level of ownership allows the potential for significant foreign influence but is not necessarily sufficient to allow foreign control.


Other influence - other enterprise groups with foreign ownership. The level of ownership is below the threshold used in defining significant foreign influence, as no single foreign investor holds 10% or more of the equity. The equity ownership is classified as portfolio investment.


Analysis of data on equity issued to non-residents by direct investment enterprise groups in Australia, as a proportion of total equity on issue, provides an indication of the amount of influence non-residents have as a result of their equity holdings.


As shown in Table 3, at 30 June 2006, $240.0b (48%) of the total foreign equity holdings of $502.1b was in the form of direct investment, with the remaining $262.1b being in the form of portfolio investment. Of the total equity on issue, these amounts represent 13% for direct investment and 14% of portfolio investment. These proportions vary significantly across sectors.


Of the $240.0b direct investment, $213.3b (89%) was in enterprise groups where a direct foreign investor held more than 50% of the shares. The direct investment equity associated with majority direct foreign ownership accounted for 42% of all foreign equity and 11% of all equity issued in Australia.



COUNTRY GROUPS

APEC


Includes Brunei Darussalam, Canada, Chile, People's Republic of China, Hong Kong (SAR of China), Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russian Federation, Singapore, Taiwan, Thailand, United States of America and Viet Nam.


ASEAN


Includes Brunei Darussalam, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Viet Nam.


EU


Includes Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden and United Kingdom. Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia are included from July 2004.


OECD


Includes Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Republic of Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States of America. Slovak Republic is included from 2000.



FOR MORE INFORMATION

The data used in this analysis are available from the International Investment Section of the Australian Bureau of Statistics. For more information on the availability of related statistics, contact Joe Whelan on Canberra 02 6252 5541 or email joe.whelan@abs.gov.au.


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