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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.

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

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.