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Feature Article - Foreign Ownership of Equity
2 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 earlier article published in the June quarter 1992 issue of International Investment Position, Australia (Cat. no. 5306.0). That article also explains the relationship between these measures and measures derived from earlier foreign participation studies.
3 The data cover financial instruments classified as equity, being listed and unlisted shares and units in trusts. Instruments convertible to equity such as convertible notes are not treated as equity until converted. Also ownership of property by non-residents and ownership of Australian branches of foreign companies are 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 explanatory notes to Australian National Accounts: Financial Accounts (Cat. no. 5232.0) and Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (Cat. no. 5331.0).
4 By expressing the value of equity issued by a particular sector to the rest of the 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 1999, equity held by 'Rest of World' in Banks was $33.4 billion, or 30% of the total equity of $112.8 billion issued by 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 sectors are shown in Table F1.1.
Analysis of results
5 Table F1.1 shows that the value of equity on issue by Australian enterprise groups at 30 June 1999 stood at $986.6 billion. Of this total, 73% related to shares or equivalent equity interests issued by corporate trading enterprises. Banks accounted for a further 11% of total equity issued, while lesser amounts were issued by non-bank deposit taking institutions (2% of the total); the central bank (1%); and other financial sub-sectors, including life offices, superannuation funds and central borrowing authorities (13%).
6 Of the total equity on issue at 30 June 1999, non-residents held equity valued at $277.7 billion (28%), while residents held $708.9 billion (72%).
7 Although the proportion of equity held by non-residents has remained relatively stable at around 28%, the total value of equity on issue has increased by 55%, from $638.3 billion to $986.6 billion over the period 30 June 1996 to 30 June 1999.
8 Analysed by sub-sector, at 30 June 1999 non-residents held 30% of the equity in corporate trading enterprises, which has changed little over recent years. The value of equity on issue by corporate trading enterprises at 30 June 1999 increased 17% on the previous year, and 44% over the three years since 30 June 1996. This increase in the value of equity on issue is due in part to privatisations in this sector.
9 The value of equity on issue by banks has nearly doubled (up 80%) over the period 30 June 1996 to 30 June 1999. The proportion of non-resident holdings of the total equity on issue by banks has also risen over this period, from 22% at 30 June 1996 to 30% at June 1999, largely as a result of domestic holdings having been sold to non-residents.
10 Although the value of equity on issue by life offices, superannuation funds, central borrowing authorities and other financial institutions has more than doubled (up 153%) over the period 30 June 1996 to 30 June 1999, the foreign ownership of this equity fell from 21% at 30 June 1996 to 14% at 31 December 1997, before increasing to 16% at 30 June 1999. The relatively large increase in the value of equity on issue is largely attributable to demutualisations in this sector in recent years.
Problems with the data that may impact on the analysis
11 Data for equity on issue for unlisted corporations are of lesser quality than the data supplied by the Australian Stock Exchange for listed corporations. Data for unlisted corporations are compiled from returns supplied in the ABS Survey of Financial Information, ABS Survey of International Investment, selected annual reports and estimates synthesised from analysing residual items in demand and supply tables for the various share markets.
12 Care should be exercised in interpreting the regional data shown in Table F1.2. Source data do not always clearly identify the country of the non-resident transactor. Accordingly, the values shown in Table F1.2 for the UK, USA and Japan may be understated by amounts attributed to 'country unspecified' in the other countries category.
13 As shown in Table F1.2, the value of holdings of equity in Australian enterprise groups by non-residents can be further disaggregated according to the country of residence of the immediate holder. This disaggregation has been done as at 30 June each year. However, regional data are not yet available for the end of the latest financial year.
14 At 30 June 1998, UK residents owned $73.7 billion (or 31%) of the foreign-owned equity in Australian enterprise groups, accounting for 8% of total equity on issue. At the same point in time, USA residents owned $69.1 billion, or 29% of the foreign equity holdings in Australian enterprise groups, while residents of Japan owned a further $14.6 billion (6%). The USA and Japanese holdings accounted for 8% and 2% respectively of total equity on issue.
15 UK residents owned 32% of the total non-resident equity investment in Australian corporate trading enterprises on issue at 30 June 1998; residents of the USA and Japan owned 31% and 6% respectively. The UK holdings accounted for 10% of the total equity of Australian corporate trading enterprises on issue, while the US and Japanese holdings accounted for a further 9% and 2% respectively.
16 The UK, USA and Japan generally have the biggest participation rates within all other sectors, although their respective contributions vary significantly across these sectors. For example, residents of the UK owned 33% of the total non-resident equity investment in Australian banks, but only 6% of the non-resident equity in non-bank deposit taking institutions. Although residents of Japan owned 26% of the total non-resident equity investment in non-bank deposit taking institutions, their participation rates in the remaining sectors is relatively small when compared to their UK and US counterparts.
17 Residents of APEC economies accounted for $104.8 billion, or 44%, of foreign-owned equity in Australian enterprise groups at 30 June 1998, while residents of EU countries accounted for $97.5 billion (41%). The holdings of residents in APEC and EU countries accounted for 12% and 11% respectively of the total equity on issue. The holdings of residents of OECD member countries amounted to $198.2 billion, which accounted for 82% of total foreign-owned equity and 22% of total equity on issue.
Significant foreign influence
18 The concept of direct investment is broadly one of capital invested in an enterprise by an investor having a significant influence, either actually or potentially exercised, 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.
19 Three enterprise group dissections are shown in Table F1.3 and these can be associated with three different levels of foreign influence: foreign control; significant foreign influence but not necessarily foreign control; and other foreign influence. First, direct investment enterprise groups over 50% owned by their direct foreign investors are groups in which there is significant foreign influence that is clearly sufficient to allow foreign control. Second, direct investment enterprise groups 10-50% owned by their direct foreign investors are groups in which there is significant foreign influence but not necessarily sufficient to allow foreign control. Third, other enterprise groups are groups in which there are foreign equity interests that are below the threshold used in defining significant foreign influence, as no foreign investor holds 10% or more of the equity. 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.
20 As shown in Table F1.3, at 30 June 1999, $151.5 billion (or 55%) of the total foreign equity holdings of $277.7 billion, was in the form of direct investment, with the remaining $126.2 billion (or 45%) being in the form of portfolio investment. These amounts represented 15% and 13% respectively of the total equity on issue. These proportions vary significantly across sectors.
21 In other words, 15% of the total equity on issue at 30 June 1999 was held by non-residents who had significant influence in the issuing Australian enterprises. This influence in most cases was sufficient to provide control, as most of the equity held by those non-residents was in enterprises where they had a majority interest.
22 As can be seen from Table F1.3, at 30 June 1999, enterprises with majority direct ownership accounted for $134.3 billion (or 89%) of all direct investment equity. The direct investment equity associated with majority direct foreign ownership also accounted for 48% of all foreign equity and 14% of all equity issued in Australia.
For more information
23 The data used in this analysis are available from the International Investment Section of the Australian Bureau of Statistics. For more information about the types of foreign participation analysis that can be undertaken or the availability of related unpublished statistics, contact Graeme Groves on Canberra (02) 6252 5364.
TABLE F1.2. OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS BY NON-RESIDENTS(a)
TABLE F1.3. FOREIGN EQUITY HOLDINGS BY DEGREE OF FOREIGN INFLUENCE AND TYPE OF EQUITY(a) AT 30 JUNE 1999 ($ BILLION)
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