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Airport Shares Proceeds Will Not Be 'Squandered'

Proceeds From Sale Of Airport Shares Will Not Be 'Squandered'

Proceeds from the sale of Auckland City's shares in Auckland International Airport will be used to repay the city's debt.

The proceeds will also be used to fund already planned developments without the need to borrow money. What is left over from the sale of the airport shares will go into a capital fund.

Chairperson of Auckland City's Finance and Corporate Business Committee Douglas Armstrong says the council is determined that the money received from the planned sale of the airport shares will not be “squandered.”

He says the capital fund will be used to pay for large projects and community amenities that would otherwise have to be funded by borrowing and putting up rates to fund the interest.

"By repaying existing debt as it falls due and then funding our planned expenditure on major projects from the capital fund rather than borrowing, we are making sure that we don't load future generations with debt.

"It also means that ratepayers in future years will not be exposed to rates increases as a result of interest increases.

"You could say that establishing a capital fund is at the heart of the decisions this council has made.”

He says the fund will be made up of proceeds from the airport shares, and the money realised over time as the council progressively exits from subsidised pensioner and residential housing.

Mr Armstrong takes issue with commentators who say the airport stake is too valuable to sell.

"The cost of our debt is higher than our return on the airport shares. If we don't sell the airport shares now, ratepayers will have to find an extra $20 million over the next two years to fund our projected debt.”

He says if the council does not sell the shares it will have to increase rates by 2 per cent in 2004 in order to fund extra interest costs, and another 2 per cent in 2005.

Mr Armstrong says ratepayers should ask themselves: if the council did not own shares in the airport now, should it spend $475 million of ratepayers’ money in order to buy them? “The answer would clearly be no.”

The council plans to spend $1.6 billion over the next 10 years on roads, stormwater, community facilities, an indoor arena, new parks, and public transport projects. At the same time it will repay existing debt and accumulate about $245 million in the capital fund.

Mr Armstrong explained the decisions by outlining the following:

- The airport shares are worth between $424 million and $475 million based on a share price of between $3.92 and $4.40. The net proceeds will be received by December 31, 2002.

- The sale of residential housing will net $27 million over three years.

- The sale of pensioner housing will net $29 million over the next 10 years with the balance being received over the following 10 years as a 20-year exit is planned.

- The loss of projected dividends of $115 million from Auckland International Airport has been taken into account.

- Interest on the capital fund accumulating over the next 10 years will amount to $111 million.

- Current debt of $60 million will be allocated to a commercial parking operation (possibly a local authority trading enterprise) with an appropriate debt/equity ratio.

- The council will trend towards a zero net debt position.

The council will establish rules for governing the capital fund to make certain it is sustainable, prudently managed, and that transparency and accountability are maintained.

ENDS


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