Crown Irrigation announces first investment
EMBARGOED UNTIL 12PM WEDNESDAY 9 APRIL 2014
9 April 2014
Crown Irrigation announces first investment
Crown Irrigation Investments Limited (Crown Irrigation) has agreed the draft terms of a $6.5 million investment in the Central Plains Water scheme.
Crown Irrigation will partner with Central Plains Water Limited for a period of 5 years to provide subordinated debt finance. This investment will enable excess capacity in the headrace to be built during Stage 1 construction that is needed for later stages of the scheme.
Crown Irrigation’s Chief Executive Officer, Murray Gribben, said today he is pleased to be part of the scheme, which will distribute reliable water to approximately 60,000 hectares of land on the Canterbury Plains once all three construction stages are complete.
“Consistent with our requirements for investment, this is off-farm infrastructure of a regional scale that will contribute to the region’s economic growth by unlocking the productivity gains that come from irrigation.”
“This scheme would not be developed to the scale required for the long-term without our short-term financial support. Crown Irrigation is looking forward to a prosperous relationship with Central Plains Water Limited, and will consider the potential to fund overcapacity in stages 2 and 3 of the scheme, when the time comes.”
Crown Irrigation has been established to help harness the potential of irrigation to accelerate New Zealand’s economic development by making targeted, bridging investments in larger, regional scale irrigation schemes. The government has signalled its willingness to invest up to $400 million through Crown Irrigation to achieve this goal.
Crown Irrigation will look to invest in irrigation schemes to assist in mitigating demand shortfall in the early stages of scheme development. Before Crown Irrigation can consider investing in schemes they need to satisfy a series of investment requirements. This includes having demonstrated technical feasibility, having consents in place, established water pricing that is fair, and having sound governance and management structures are in place.
Crown Irrigation’s Board Chair, Dame Alison Paterson, said that the decision to invest in the Central Plains Water scheme is consistent with Crown Irrigation’s investment objective of supporting irrigation development through to financial viability, where investment from other sources of capital has been exhausted. “This first investment by Crown Irrigation will allow the Central Plains Water scheme to be optimally sized for the long term, providing increased returns to agricultural producers on the Canterbury Plains.”
Financial close for the investment is expected to be reached before mid-2014. This allows for comprehensive due diligence to be carried out by Crown Irrigation and conditions precedent to be satisfied, prior to final approval of a loan agreement.
Why does Crown Irrigation consider it appropriate to invest in the Central Plains Water scheme?
The government has set up Crown Irrigation to invest in schemes that meet explicit requirements. Crown Irrigation has assessed the viability of the Central Plains Water scheme and determined that an investment is consistent with its mandate on the basis that:
• Private sources of capital for the scheme have been maximised.
• There is an opportunity for Crown Irrigation to assist the scheme by funding excess capacity in the early stages of scheme development that will unlock economic benefits in later stages.
• There is strong farmer uptake which means that expected revenues are sufficient to cover expected costs.
What will Crown Irrigation’s due diligence analysis consist of?
The conditions of the terms sheet allow Crown Irrigation to carry out comprehensive due diligence analysis on the investment proposition. The purpose of this work is to confirm the conclusions of Crown Irrigation’s initial analysis of the scheme characteristics. Crown Irrigation is aiming to reach financial close on a loan agreement with Central Plains Water before 30 June 2014.
How else will the Central Plains Water scheme be financed?
Financing for Stage 1 of the Central Plains Water scheme will be provided through famer equity (Stage 1 construction shares), senior bank debt and Crown Irrigation subordinated debt. Financing for later stages of the scheme is yet to be determined.
How will proposed reductions in the suggested nitrate allocation by Environment Canterbury impact on the CPW scheme?
Environment Canterbury is currently going through a process of receiving submissions on its Land and Water Regional Plan, which regulates nitrate leakage. CPW is actively managing, and engaging with Environment Canterbury, on this matter.
The likely impact of the plan change on CIIL’s investment will be assessed and monitored by CIIL throughout the due diligence phase.
More information on Environment Canterbury’s Land and Water Regional Plan can be found at: http://ecan.govt.nz/our-responsibilities/regional-plans/regional-plans-under-development/lwrp/Documents/lwrp-faqs-and-what-does-it-mean.pdf.