Manukau City Council Gambles on the Share Market.

On Friday 20 January, Manukau City Investments Limited (MCIL) purchased 5 million Auckland International Airport shares on behalf of the Manukau City Council. The Council, through MCIL, already holds over 116 million shares in the company.

To fund this purchase, Manukau City Council gave approval for MCIL to raise a loan of approximately $10 million. This approval was narrowly passed by a single vote at a hotly debated closed door meeting.

Manukau City Councillor Jami-Lee Ross stood opposed to the purchase and says the Council is entering dangerous territory by gambling ratepayers’ money in this fashion. “Manukau City’s holding in the airport was only originally gifted to the city many years ago. However, playing the share market now is outside of the scope of the Council’s role.

“The Council has also chosen a high-risk buying method by borrowing money for this spending spree. The share market is a volatile place and common sense would tell us that investing with borrowed money is not a wise thing to do.

“With interest and loan repayments this purchase translates into reduced share dividends by around $500,000 each year. This essentially means the half million dollar shortfall will have to be raised via rates which I doubt Manukau City residents will ever see any benefits from.”

Mr Ross is also concerned that the Council has committed itself to a $10 million loan without any consultation with the public. “Council’s own policies state that a decision of this magnitude is of high significance and only to be made after extensive consultation. Instead the Council has made a huge decision behind ratepayers’ backs with absolutely no public discussion.”

In the official Council media release on this share purchase reference is made to the 10 percent threshold required to prevent compulsory acquisition. “I acknowledge that this may be a reason for an investor to increase his or her shareholding in a company, but Manukau City Council has ignored the fact that the Auckland City Council already owns 13 percent of the airport in its own right.

“Manukau City’s interest in the airport is currently protected by the two Councils’ combined shareholding. This multi million dollar acquisition by Manukau City would therefore appear only as an ego booster paid for with other peoples’ money.” Mr Ross concludes by saying that he was very optimistic about the creation of the MCIL Council Controlled Organisation last year, but is now concerned at the direction it is taking. “Council has started the new year by blowing $10 million in one hit. If Council can’t control its spending from here on in, 2006 is going to be a pretty dismal year for the ratepayers’ of Manukau City.”

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