5302.0 - Balance of Payments and International Investment Position, Australia, Sep 2002  
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Feature Article - Foreign Ownership of Equity


This article was published in Balance of Payments and International Investment Position, Australia (ABS Cat. no 5302.0) September, 2002

INTRODUCTION

This article updates the analysis of foreign ownership of Australian equity presented in the September quarter 2001 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 33 of this publication 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 2002 issue of Australian National Accounts: Financial Accounts (cat. no. 5232.0).

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.

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 Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0) and the Explanatory Notes to Australian National Accounts: Financial Accounts (cat. no. 5232.0).

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 2002, equity held by 'rest of world' in banks was $48.5b, or 26% of the total equity of $189.3b 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 sector are shown in table F1.


ANALYSIS OF RESULTS

Table F1 shows that the value of equity on issue by Australian enterprise groups at 30 June 2002 stood at $1,181.4b. Of this total, 65% related to shares or similar equity interests issued by corporate trading enterprises. Banks accounted for a further 16% of total equity issued; other financial sub-sectors, including life and other insurance corporations and central borrowing authorities also accounted for 16%; 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 2002, non-residents held equity valued at $336.0b (28%), while residents held $845.4b (72%).

The proportion of equity held by non-residents has fallen slightly, from 29% in June 2001 to 28% in June 2002. The total value of equity on issue has increased by 19%, from $991.7b to $1,181.4b over the three-year period since 30 June 1999.

Analysed by sub-sector, at 30 June 2002 non-residents held 33% 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 2002 decreased 5% on the previous year, but has increased 6% over the three years since 30 June 1999.

While the value of equity on issue by banks has increased 67% to $189.3b, over the period 30 June 1999 to 30 June 2002, the proportion held by non-residents increased from 25% to 26% during this period.

The value of equity on issue by 'other' financial sub-sectors has increased 48% to $191.5b, over the three year period 30 June 1999 to 30 June 2002. The foreign ownership of this sub-sector's equity has increased from 13% at 30 June 1999 to 16% at 30 June 2002.

Graph - Foreign ownership of Australian enterprise groups by sector



PROBLEMS WITH THE DATA THAT MAY IMPACT ON ANALYSIS

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.

Care should also be exercised in interpreting the regional data shown in table F2. Source data do not always clearly identify the country of the non-resident transactor. Accordingly, the values shown in table F2 for the USA, UK and Japan may be understated by amounts attributed to 'country unspecified' in the other countries category.


REGIONAL ANALYSIS

As shown in table F2, 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 mmediate holder. This disaggregation has been done as at the end of each financial year.

At 30 June 2002, UK residents owned $110.0b (33%) of the foreign-owned equity in Australian enterprise groups, accounting for 9% of total equity on issue. At the same point in time, USA residents owned $97.2b (29%) of the foreign equity holdings in Australian enterprise groups, while residents of Japan owned a further $19.3b (6%). The USA and Japanese holdings accounted for 8% and 2%, respectively, of total equity on issue.

UK residents owned 31% of the total non-resident equity investment in Australian corporate trading enterprises on issue at 30 June 2002, while residents of the USA and Japan owned a further 30% and 6%, respectively. The UK and USA holdings each accounted for 10% of the total equity of Australian corporate trading enterprises on issue, while Japanese holdings accounted for a further 2%.

The USA, UK and Japan generally have the biggest participation rates in the other sectors, although their respective contributions vary significantly across these sectors. For example, at 30 June 2002, residents of the UK owned 51% of the total non-resident equity investment in Australian banks, but only 2% of the non-resident equity in non-bank deposit taking institutions. Although residents of Japan owned 20% of the total non-resident equity investment in non-bank deposit taking institutions at 30 June 2002, their participation rates in the remaining sectors are relatively small when compared with their UK and US counterparts.

Residents of APEC economies accounted for $154.2b (46%) of foreign-owned equity in Australian enterprise groups at 30 June 2002, while residents of EU countries accounted for $135.3b (40%). The holdings of residents in APEC and EU countries accounted for 13% and 11% respectively of the total equity on issue. The holdings of residents of OECD member countries amounted to $276.1b, which accounted for 82% of total foreign-owned equity and 23% of total equity on issue.


SIGNIFICANT FOREIGN INFLUENCE

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.

Three enterprise group dissections are shown in table F3 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.

As shown in table F3, at 30 June 2002, $175.3 (52%) of the total foreign equity holdings of $336.0b was in the form of direct investment, with the remaining $160.7b (48%) being in the form of portfolio investment. These amounts represented 15% and 14%, respectively, of the total equity on issue. These proportions vary significantly across sectors.

In other words, the $175.3b of equity held in the form of foreign direct investment represents 15% of the total equity on issue at 30 June 2002 being held by non-residents who had significant influence in the issuing Australian enterprises. This influence in most cases was sufficient to provide control, as $162.7b (93%) of the equity held by those non-residents 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 also accounted for 48% of all foreign equity and 14% of all equity issued in Australia.


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 about the type of foreign participation analysis that can be undertaken or the availability of related statistics, contact Kevin Yeadon on Canberra 02 6252 6255 or email k.yeadon@abs.gov.au.


F1 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS(a), Value of Equity Outstanding at End of Period
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
1998-99
1999-2000
2000
2000
2001
2001
2001
2001
2002
2002
All sectors
Amount issued ($b)
991.7
1 118.3
1120.6
1100.5
1102.0
1206.8
1116.2
1221.5
1225.6
1181.4
Amount held by rest of world ($b)
287.0
330.8
332.2
309.0
309.6
345.8
317.9
300.8
349.3
336.0
Percentage of foreign ownership (%)
27
26
26
26
26
29
26
26
27
28
Sub-sectors
Corporate trading enterprises(b)
Amount issued(c) ($b)
722.4
791.9
791.6
758.5
755.7
810.1
758.2
813.8
807.6
765.6
Amount held by rest of world ($b)
237.4
271.1
268.9
239.0
237.7
264.6
245.7
271.1
266.7
253.1
Percentage of foreign ownership (%)
33
34
34
32
31
33
32
33
33
33
Banks
Amount issued(c) ($b)
113.3
138.6
138.9
153.2
147.6
178.3
152.1
178.6
183.2
189.3
Amount held by rest of world ($b)
28.3
31.1
33.9
39.1
37.8
45.4
39.4
46.1
47.3
48.5
Percentage of foreign ownership (%)
25
22
24
26
26
25
26
26
26
26
Non-bank deposit taking institutions
Amount issued(c) ($b)
15.0
15.7
14.4
14.7
16.8
20.1
21.6
23.6
23.6
23.6
Amount held by rest of world ($b)
4.0
3.5
3.7
3.8
3.9
3.9
4.1
4.2
4.2
4.4
Percentage of foreign ownership (%)
27
22
26
26
23
19
19
18
18
19
Other financial sub-sectors(d)
Amount issued(c) ($b)
129.6
161.7
164.6
163.7
168.6
186.0
173.3
195.5
200.5
191.5
Amount held by rest of world ($b)
17.2
25.0
25.7
27.0
30.2
31.9
28.8
30.4
31.1
30.0
Percentage of foreign ownership (%)
13
14
14
14
17
17
17
16
16
16
Central Bank
Amount issued(e)(f) ($b)
10.9
10.4
11.1
10.4
13.5
12.3
10.9
10.5
10.4
11.4
(a) Equity includes units in trusts.
(b) Includes private non-financial corporations; and national, state and local public non-financial corporations.
(c) These estimated market values are considered to be of poor quality. They should be used cautiously. See the section on data problems in this article for further details.
(d) Includes life and other insurance corporations; central borrowing authorities; and other financial institutions.
(e) Net asset values.
(f) There is no foreign ownership in this sub-sector.
Source: Tables 40 and 41 in Australian National Accounts: Financial Accounts (Cat. no. 5232.0), June quarter 2002, and Table 33 in this publication.


F2 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS BY NON-RESIDENTS(a)
30 June
2000
30 June
2001
30 June
2002
Geographical location of immediate investor by
Sector/Country/Country groups
$b
%
$b
%
$b
%
All sectors
330.8
100
345.8
100.0
336.0
100.0
United States of America
114.1
34
110.3
32.0
97.2
29.0
United Kingdom
113.3
34
123.5
36
110
33.0
Japan
16.0
5
16.4
5
19.3
6.0
Other countries(b)
87.3
26
95.6
28
109.5
33.0
OECD
287.3
87
294.7
85
276.1
82.0
APEC
156.8
47
154.9
45.0
154.2
46.0
EU
135.8
41
147.1
43.0
135.3
40.0
ASEAN
6.8
2
8.8
3
16.5
5.0
Sub-sectors(c)
Corporate trading enterprises(d)
271.1
100
264.6
100.0
253.1
100.0
United States of America
98.0
36
87.6
33.0
74.9
30.0
United Kingdom
93.5
34
93.2
35
78.7
31.0
Japan
12.6
5
13.3
5
16.4
6.0
Other countries(b)
67.1
25
70.4
27.0
83.1
33.0
Banks
31.1
100
45.4
100.0
48.5
100.0
United States of America
9.5
31
13.4
30
14.4
30.0
United Kingdom
14.5
47
23.4
51
24.7
51.0
Japan
1.0
3
1.1
2.0
1.0
2.0
Other countries(b)
6.0
19
7.6
17.0
8.4
17.0
Non-bank deposit taking institutions
3.5
100
3.9
100
4.4
100.0
United States of America
1.1
31
1.2
31
1.3
30.0
United Kingdom
0.1
1
0.1
3
0.1
2.0
Japan
1.0
29
0.8
21
0.9
20.0
Other countries(b)
1.3
38
1.7
44
2.1
48.0
Other financial sub-sectors(e)
25.0
100
31.9
100
30
100.0
United States of America
5.5
22
8.0
25
6.6
22.0
United Kingdom
5.3
21
6.8
21
6.5
22.0
Japan
1.4
5
1.2
4
1
3.0
Other countries(c)
12.8
51
15.8
50
15.9
53.0
(a) Total equity held by non-residents, includes direct and portfolio equity investment.
(b) Includes unspecified and all other countries.
(c) Data for Central 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.


F3 FOREIGN EQUITY HOLDINGS, by Degree of Foreign Influence and Type of Equity(a)-at 30 June 2001
OTHER
ENTERPRISE
GROUPS
DIRECT INVESTMENT ENTERPRISE GROUPS
ALL ENTERPRISE GROUPS
10-50% owned by direct
Over 50% owned by direct
foreign investors(s)
foreign investors(s)
Equity held by rest of world
Direct
Portfolio
Total
Direct
Portfolio
Total
Total
Direct
Portfolio
Total
$ billion
All sectors
12.6
0.9
13.5
162.7
0.4
163.1
159.4
175.3
160.7
336.0
Sub-sectors(b)
Corporate trading enterprises(c)
9.8
0.7
10.5
140.5
0.4
140.9
101.8
150.3
102.8
253.1
Banks
0.3
-
0.3
7.4
-
7.4
40.8
7.7
40.8
48.5
Non-bank deposit taking
0.1
-
0.1
4.3
-
4.3
-
4.4
-
4.4
institutions
Other financial sub-sectors(d)
2.4
0.2
2.5
10.5
-
10.5
16.9
12.9
17.1
30.0
PERCENTAGE
All sectors
Proportion of total equity on issue
1
-
1.0
13
-
13
13
14.0
13
27
Proportion of total equity held by
4
-
4.0
48
-
49.0
47.0
52.0
48.0
100.0
(a) The type of equity dissection in the table shows foreign direct investment equity holdings separately from foreign portfolio equity holdings. Direct investment equity holdings refers to holdings of direct investors; that is, investors who own 10% or more of the voting shares of an enterprise. Portfolio investment equity holdings refers to holdings of all other investors, covering their holdings in both direct investment enterprise groups and other enterprise groups.
(b) Data for Central Bank are not shown, as there is no foreign ownership in this sub-sector.
(c) Includes private non-financial corporations; and national, state and local public non-financial corporations.
(d) Includes life and other insurance corporations; central borrowing authorities; and other financial institutions.