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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 September quarter 2003 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 28 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 2004 issue of Australian National Accounts: Financial Accounts (cat. no. 5232.0).

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).
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 2004, equity held by 'rest of world' in Australian banks was $48.6b, or 26% of the total equity of $189.1b 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 F1.

F1 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS(a), Value of Equity Outstanding at End of Period
			2000- 2001	2001- 2002	Sep Qtr 2002	Dec Qtr 2002	Mar Qtr 2003	Jun Qtr 2003	Sep Qtr 2003	Dec Qtr 2003	Mar Qtr 2004	Jun Qtr 2004
All sectors
	Amount issued ($b)		1,204.7	1,186.2	1,139.0	1,156.2	1,144.3	1,187.2	1,237.5	1,300.5	1,344.4	1,391.1
	Amount held by rest of world ($b)		358.1	353.2	343.4	358.1	350.6	363.1	382.2	402.9	414.6	428.4
	Percentage of foreign ownership (%)		29.7	29.8	30.1	31.0	30.6	30.6	30.9	31.0	30.8	30.8
Sectoral Components
	Non-Financial Corporations(b)
		Amount issued ($b)(c)	804.9	764.5	734.6	752.0	748.5	761.0	807.0	857.8	875.7	915.5
		Amount held by rest of world ($b)	268.8	258.0	254.7	273.7	266.8	275.0	293.2	312.9	314.5	326.9
		Percentage of foreign ownership (%)	33.4	33.7	34.7	36.4	35.6	36.1	36.3	36.5	35.9	35.7
	Banks
		Amount issued ($b)(c)	178.1	189.9	173.2	165.3	162.4	180.9	173.8	178.2	192.4	189.1
		Amount held by rest of world ($b)	48.5	53.4	47.9	42.6	44.0	46.8	46.4	45.2	49.9	48.6
		Percentage of foreign ownership (%)	27.2	28.1	27.7	25.8	27.2	25.9	26.7	25.4	25.9	25.7
	Non-bank deposit taking institutions
		Amount issued ($b)(c)	20.3	25.3	27.4	30.9	32.7	34.3	33.0	34.2	37.9	37.1
		Amount held by rest of world ($b)	4.2	4.6	5.0	6.8	7.2	7.4	7.6	7.9	12.2	12.4
		Percentage of foreign ownership (%)	20.7	18.2	18.2	22.0	22.0	21.6	23.0	23.1	32.2	33.4
	Other financial sub-sectors
		Amount issued ($b)(c)	189.1	195.0	192.7	196.5	189.1	199.3	213.1	220.4	227.8	236.8
		Amount held by rest of world ($b)	36.7	37.2	35.9	35.0	32.7	33.8	35.0	36.8	38.0	40.6
		Percentage of foreign ownership (%)	19.4	19.1	18.6	17.8	17.3	17.0	16.4	16.7	16.7	17.1
	Central Bank
		Amount issued ($b)(d)(e)	12.3	11.4	11.0	11.5	11.5	11.7	10.5	10.0	10.5	12.5
(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) Net asset values.
(e) 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 2004, and Table 33 in this publication.

ANALYSIS OF RESULTS

Table F1 shows that the value of equity on issue by Australian enterprise groups at 30 June 2004 stood at $1,391.1b. Of this total, 66% 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 17%; banks accounted for a further 14% of total equity issued; while lesser amounts were issued by 'non-bank deposit taking institutions' (3%); and the Central Bank (1%).

Of the total equity on issue at 30 June 2004, non-residents held equity valued at $428.4b (31%), while residents held $962.7b (69%).

The proportion of equity held by non-residents remained constant at around 30% from June 2003 to June 2004 and varied by only 1 percentage point from 30 June 2001. The total value of equity on issue increased 17% from $1,187.2b to $1,391.1b from 30 June 2003 to 30 June 2004 and 15% in the three years from 30 June 2001.

At 30 June 2004 non-residents held 36% of the equity in non-financial corporations. This proportion rose from 33% to 36% over the three years to 30 June 2004. The value of equity on issue by non-financial corporations at 30 June 2004 increased 20% on the previous year and 14% on 30 June 2001.

The value of equity on issue by banks increased 6% to $189.1b over the period 30 June 2001 to 30 June 2004 and 5% in the 12 months from 30 June 2003. The proportion held by non-residents changed slightly from 30 June 2003 but has varied between 25% and 28% over the last three years.

The value of equity on issue by 'other' financial sub-sectors increased 25% to $236.8b, over the three year period 30 June 2001 to 30 June 2004. Foreign ownership of this sector's equity decreased from 19% at 30 June 2001 to 17% at 30 June 2004.

FOREIGN OWNERSHIP OF AUSTRALIAN ENTERPRISE GROUPS BY SECTOR

F2 OWNERSHIP OF EQUITY IN AUSTRALIAN ENTERPRISE GROUPS BY NON-RESIDENTS(a)
			30 June 2002			30 June 2003			30 June 2004
Geographical location of immediate investor by Sector/Country/Country groups			$b		(%)	$b		(%)	$b		(%)
All sectors			353.2		100	363.1		100	428.4		100
	United Kingdom		115.4		33	113.2		31	127.2		30
	United States of America		103.5		29	106.9		29	138.1		32
	Japan		19.3		5	18.7		5	20.1		5
	Other countries(b)		115.0		33	124.3		34	143.0		33
	OECD		292.7		83	301.5		83	353.3		82
	APEC		153.5		43	160.5		44	196.5		46
	EU		142.8		40	145.0		40	161.2		38
	ASEAN		6.7		2	8.4		2	9.0		2
Sectoral components(c)
	Non-financial corporations(d)		258.0		100	275.0		100	326.9		100
		United Kingdom	81.4		32	85.6		31	97.9		30
		United States of America	75.8		29	81.4		30	104.4		32
		Japan	16.4		6	15.9		6	17.5		5
		Other countries(b)	84.4		33	92.1		33	107.1		33
	Banks		53.4		100	46.8		100	48.6		100
		United Kingdom	27.5		51	23.4		50	23.0		47
		United States of America	16.0		30	14.5		31	15.5		32
		Japan	1.0		2	0.9		2	0.8		2
		Other countries(b)	8.9		17	8.0		17	9.3		19
	Non-bank deposit taking institutions		4.6		100	7.4		100	12.4		100
		United Kingdom	0.1		2	0.1		1	0.2		2
		United States of America	1.5		33	2.2		30	6.7		54
		Japan	0.9		20	0.9		12	1.1		9
		Other countries(b)	2.1		46	4.2		57	4.4		35
	Other financial sub-sectors(e)		37.2		100	33.8		100	40.6		100
		United Kingdom	6.4		17	4.0		12	6.1		15
		United States of America	10.2		27	8.8		26	11.5		28
		Japan	0.9		2	0.9		3	0.8		2
		Other countries(b)	19.7		53	20.1		59	22.2		55
(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.

At 30 June 2004, UK residents owned $127.2b (30%) of the foreign-owned equity in Australian enterprise groups, accounting for 9% of total equity on issue. At the same time, USA residents owned $138.1b (32%) of the foreign equity holdings in Australian enterprise groups, while residents of Japan owned a further $20.1b (5%). The USA and Japanese holdings accounted for 10% and 1%, respectively, of total equity on issue.

UK residents' share of ownership of foreign-owned equity in Australian enterprise groups fell steadily from 33% at 30 June 2002 to 30% at 30 June2004. US residents' share of ownership rose from 29% in 2002 to 32% in 2004. Japanese residents' share of ownership was relatively steady over this period.

UK residents owned 30% of the total non-resident investment in Australian non-financial corporations' equity on issue at 30 June 2004, while residents of the USA and Japan owned 32% and 5% respectively. The UK and USA holdings each accounted for 11% of the total equity of Australian non-financial corporations on issue, while Japanese holdings accounted for 2%.

UK residents' share of ownership of total non-resident equity in Australian non-financial corporations fell from 32% in 2002 to 30% in 2004. US residents' share of ownership rose from 29% in 2002 to 32% in 2004.

USA, UK and Japan residents generally have the highest participation rates in the other sectors, although their respective contributions vary significantly across these sectors. For example, at 30 June 2004, residents of the UK owned 47% of the total non-resident equity investment in Australian banks, but only 2% of the non-resident equity in non-bank deposit taking institutions. While residents of Japan owned 9% of the total non-resident equity investment in non-bank deposit taking institutions at 30 June 2004, their participation rates in the remaining sectors were relatively small when compared with their UK and US counterparts.

Residents of APEC economies accounted for $196.5b (46%) of foreign-owned equity in Australian enterprise groups at 30 June 2004, while residents of EU countries accounted for $161.2b (38%). The holdings of residents of APEC and EU countries accounted for 14% and 12% respectively of the total equity on issue. The holdings of residents of OECD member countries amounted to $353.3b, which accounted for 83% of total foreign-owned equity and 25% 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% to 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 (as constitutes portfolio investments). 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.

F3 FOREIGN EQUITY HOLDINGS(a), by Degree of Foreign Influence and Type of Equity at 30 June 2004
		DIRECT INVESTMENT ENTERPRISE GROUPS						OTHER ENTERPRISE GROUPS	ALL ENTERPRISE GROUPS
		10 - 50 % owned by direct foreign investor(s)			Over 50 % owned by direct foreign investor(s)
Equity held by rest of world		Direct	Portfolio	Total	Direct	Portfolio	Total	Total	Direct	Portfolio	Total
$ billion
All sectors		20.2	1.2	21.5	195.0	0.1	195.1	211.9	215.2	213.1	428.4
Sectoral components(b)
	Non-financial corporations(c)	16.3	0.8	17.2	166.5	0.1	166.6	143.1	182.8	144.0	326.9
	Banks	0.5	-	0.5	5.5	-	5.5	42.6	6.0	42.6	48.6
	Non-bank deposit taking institutions	-	-	-	12.3	-	12.3	-	12.4	-	12.4
	Other financial sub-sectors(d)	3.3	0.4	3.7	10.7	-	10.7	26.1	14.0	26.5	40.6
Percentage
All sectors
	Proportion of total equity on issue	1	-	2	14	-	14	15	15	15	31
	Proportion of total equity held by rest of world	5	-	5	46	-	46	50	50	50	100
- nil or rounded to zero (including null cells)
(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 Reserve 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.

As shown in Table F3, at 30 June 2004, $215.2b (50%) of the total foreign equity holdings of $428.4b was in the form of direct investment, with the remaining $213.1b being in the form of portfolio investment. These amounts each represented 15% of the total equity on issue. These proportions vary significantly across sectors.

Of the $215.2b direct investment, $195.0b (91%) 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 46% 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.