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Auckland $89 million net gain from asset sales

MEDIA RELEASE

10 November 2002


Auckland will make $89 million net gain from asset sales and new Capital Fund strategy

Auckland City today revealed the first numbers generated on the net economic gain it will make from selling its Auckland Airport shares and housing portfolio.

The city will enjoy a net gain of $89 million over the next nine years, if the sales go ahead and the money is invested in perpetuity in a new Capital Fund.

The new numbers are in a report going to councillors attending an annual plan direction-setting meeting on Thursday 14 November.

The chairperson of the council’s Finance and Corporate Business Committee, Councillor Douglas Armstrong, said the Capital Fund strategy would deliver a net extra $9.8 million a year to develop new community assets.

The new Capital Fund will peak at $296 million in June 2003.

The report’s conclusions are based on:

- $450 million from airport shares sales (including the $54 million capital distribution)
- $83 million from sale of the housing portfolio
- $78 million in savings on paying interest on city debt (with a debt interest rate of 7.15%)
- Forgoing $110 million in airport dividends ($12 million a year)
- The Capital Fund earning at 5.4% a year
- Repayment or avoiding the need to borrow about $240 million of debt.

Councillor Armstrong said the airport shares would only be sold if the council receives a good price.

However, the modelling now being done on the next steps open to the city after the sale of airport and housing portfolios showed major benefits could be delivered.

The city now had a chance to run debt free – and create a new source of funding for new community assets.

Councillors would now need to carefully consider a number of options during the next eight weeks as the forward financial planning was locked into place. The airport sale was expected to conclude by Christmas. The housing deal with Government was due to go unconditional on 30 November and conclude on 1 March 2003.

Auckland Mayor John Banks said today the sales strategy and new Capital Fund would deliver significant opportunities for the city for generations to come.

It would also change the political landscape.

When Aucklanders understood they could have a debt mountain – or have a debt-free city with an extra $89 million available to buy new assets – and grow jobs then those opposing the sale would have difficulty generating public support.

“We have an opportunity now to be probably the only city in New Zealand with a chance of achieving a magic financial trifecta – zero debt, zero real rates rises – and a fund to grow city assets.

“Another $89 million in new investment capital will be like having money to buy another two Viaduct Harbours. The city invested $40 million in that – and its regional economic impact during one America’s Cup event alone was $472 million.

“Instead of forever paying to lending institutions the capital fund will make us millions of dollars every year. It would enable Council to invest in first world footpaths, stormwater and facilities – core infrastructure that has been neglected for years.

“The City is in dire need of some major economic infrastructure and the House of Auckland is already mortgaged up to its eyeballs on borrowed money. Any homeowner would not take out a second mortgage to pay for repairs and maintenance when the alternative was to wipe out the first mortgage and make significant interest rather than pay it.”

“The Council must now rise to the challenge and begin the process of locking down the proposed capital fund so the City can begin to reap all the subsequent rewards,” concluded Mr Banks.

ENDS

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