Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Chch mulls sale of strategic assets stake for rebuild

Christchurch considers selling strategic assets stake to fund rebuild

By Pattrick Smellie

Aug. 1 (BusinessDesk) - Christchurch City Council is contemplating the sale of a strategic stake in the holding company that controls the city's port, airport and electricity network to help close the growing gap between its available funding and the likely size of its share of earthquake rebuild costs.

A new report from investment bankers Cameron Partners, published this morning, has added as much as $400 million to the $440 million funding shortfall already identified in a report by accounting firm Korda Mentha on the same issues earlier this year, threatening the city's credit rating and legal obligations to control debt.

Rather than sell shares in each of its most important strategic assets, mayor Lianne Dalziel will argue the city would gain strategic advantage from bringing on new investors to the holding company that controls them, ensuring better support for the city's long-term strategic needs at the same time as addressing a funding shortfall which, on a worst case scenario, could top $800 million.

At that level, the city's A+ credit rating from Standard & Poor's would be threatened at the peak of the quake rebuild funding cycle, projected to hit in 2019, as well as risking a breach in its financial obligations under local government finance legislation.

Such a move would also shield Christchurch ratepayers from other alternatives for fund-raising, including "exponential rates increases."

"Releasing capital from our balance sheet alongside the other options, (including increased income, reduced operational expenditure and government assistance), is clearly one of the ways we can address the uncertainty around the city’s finances," said Dalziel.

"We would protect the city’s long-term interests by ring-fencing the quantum of any such proposal and ensuring that the shares return to the council through a right of first refusal so they are not available to the open market," said mayor Lianne Dalziel at a press conference in Christchurch.

It is understood the council would contemplate selling up to 25 percent of CCCHL, targeting "one or more" strategic, New Zealand-based investors such as the New Zealand Superannuation Fund, Accident Compensation Corp, NZX-listed infrastructure investor Infratil and the increasingly powerful commercial arm of local iwi Ngai Tahu.

CCCHL owns 89.3 percent of Orion, the city's electricity network, 75 percent of Christchurch International Airport, and 79.3 percent of NZX-listed Port of Lyttelton, as well as fully controlling the Red Bus company, City Care, Enable Services and Ecocentral.

"The purpose of releasing capital would be to generate funds to assist in solving the identified funding shortfall; provide the level of confidence and certainty required to develop a credible long term financial strategy and get on with the rebuild of our community facilities, infrastructure and housing; allow CCC to buffer Christchurch residents and businesses from the exponential rates increases; and allow CCC to align our vision and strategic objectives for the rebuild with our asset portfolio - that is, what we own and operate," said Dalziel.

The blueprint gained immediate endorsement from Christchurch Recovery Minister Gerry Brownlee, and may have assisted in securing renewed public commitment by the government to increased funding for the Canterbury rebuild.

"The Cameron Partners report makes it clear some major areas of financial uncertainty are causing headaches for Christchurch city, including the cost of repairing and replacing the city’s essential horizontal infrastructure," said Brownlee. That was why the June 2013 cost-sharing agreement between central and local government had included a cost review by Dec 1 this year.

"We are confident Christchurch city has the balance sheet capacity and political leadership to meet these challenges," said Brownlee of the one year-old council leadership, which largely replaced a council previously regarded as divided and dysfunctional even before the 2010 and 2011 quakes flattened much of the city.

Labour Party Canterbury recovery spokesperson Ruth Dyson said there "plenty of options" for funding the Christchurch rebuild, but asset sales would "leave the city worse off financial and strategically in the long term" and were not an option.

However, Dalziel, a former Labour Cabinet Minister, said the release of up to $400 million from the CCC balance sheet was a "prudent proposal" against total council assets of $8.3 billion, and that the council would retain a right of first refusal to repurchase shares sold to any strategic investor. There would be no shares offered to the public, unlike the government's recently completed partial privatisation programme.

"We will be making it clear that if a decision is made to release the capital, CCC proposes to maintain our key infrastructure assets, which are Christchurch International Airport, of which we own 75% with central government owning the balance over which the council has the right of first refusal, followed by Ngai Tahu, the Lyttelton Port Company, a publicly listed company in which we hold 79.6% of shares, and Orion, of which we own 89% alongside the Selwyn District Council."

Public consultations on the proposals will take place over two months, beginning Sept 4, the fourth anniversary of the first of the series of quakes that "changed our city forever."

"This will be a defining moment for our city, a turning point in our recovery," Dalziel said.

The Cameron Partners report portrays the choices about council-owned strategic assets as choices relating not only to funding the city's part of the rebuild, although it notes "there is considerable scope to impact CCC's funding position through partial sale, where CCC retains control, if it considers that its strategic objectives can be met through partnership or other arrangements."

However, it says the current ownership arrangements are "sub-optimal" for the rebuild and reflect CCC's pre-quake asset management approach, which was to maintain a "steady state" approach.

Instead, it proposes creating a new asset-holding entity which would undertake a "respecification and realignment of their (CCC commercial subsidiaries') existing mandates into one which is focused on CCC's challenges/objectives in relation to rebuilding a new city and managing the transition from Crown involvement to council control."

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Gordon Campbell: On Tiwai Point (And Saying “No” In Greece)

Its hard to see how Rio Tinto’s one month delay in announcing its intentions about the Tiwai Point aluminium smelter is a good sign for (a) the jobs of the workers affected or (b) for the New Zealand taxpayer. More>>

ALSO:

Half Empty: Dairy Product Prices Extend Slide To Six-Year Low

Dairy product prices continued their slide, paced by whole milk power, in the latest GlobalDairyTrade auction, weakening to the lowest level in six years. More>>

ALSO:

Copper Broadband: Regulator Set To Keep Chorus Pricing Largely Unchanged

The Commerce Commission looks likely to settle on a price close to its original decision on what telecommunications network operator Chorus can charge its customers, though it probably won’t backdate any update. More>>

ALSO:

Lower Levy For Safer Cars: ACC Backtracks On Safety Assessments

Dog and Lemon: “The ACC has based the entire levy system on a set of badly flawed data from Monash University. This Monash data is riddled with errors and false assumptions; that’s the real reason for the multiple mistakes in setting ACC levies.” More>>

ALSO:

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Floods: Initial Assessment Of Economic Impact

Authorities around the region have compiled an initial impact assessment for the Ministry of Civil Defence, putting the estimated cost of flood recovery at around $120 million... this early estimate includes social, built, and economic costs to business, but doesn’t include costs to the rural sector. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news