UPDATE: Iwi seeks bigger local stake in Napier Port sale
(Adds council rejection of local discount in first and from 12th paragraph.)
By Gavin Evans
Nov. 30 (BusinessDesk) - Ngati Pahauwera is urging Hawke’s Bay Regional Council to offer shares in Napier Port to residents and iwi at a discount in order to secure a local cornerstone holding in the firm, an idea the council has already rejected.
The iwi’s development trust said it would consider investing up to $5 million in the port, with a two-year restriction on sale, were the shares offered at a discount to the general offer.
Trust chair Toro Waaka noted the council’s proposal to offer locals the first option over any shares sold. But in a submission on the proposal, he said that is unlikely to be attractive enough to secure a large cornerstone holding within the region.
Waaka said that, from a portfolio risk perspective, Mohaka-based Ngati Pahauwera would be better to invest across a range of ports – particularly given the development risk that comes with Napier Port as it expands. On that basis, it would be unlikely to subscribe for more than $100,000 without some other incentive.
“It is for these reasons that HBRC should seriously consider the manner in which an IPO is presented to the public and the benefits that large, cornerstone investment from local iwi would bring to the table.”
Napier Port, wholly-owned by the regional council, is the fourth-largest container operation in the country. It expects to invest about $350 million during the next decade to cater for the region’s growing log, timber and apple exports.
The council can’t afford to fund that and meet its environmental obligations and has proposed selling up to 45 percent of the business through a share offer in order to free up capital and diversify the council’s investment base.
If the sale proceeds it will be the first new opportunity public investors will have had to buy shares in a port company since Christchurch City Council delisted Lyttelton in November 2014.
The regional council will next week hear oral submissions on the proposal and alternative options to fund the port’s expansion from loans and rates, leasing it to a long-term operator, or selling half the business to an operating partner.
Almost 3,500 groups and individuals submitted on the plan with about 57 percent backing the proposed share sale.
If a share sale proceeds, the regional council favours some sort of preferential offer to ratepayers.
Chair Rex Graham said the council will take advice on how that could be done, and to what level it could go to without affecting liquidity.
But he said there would be no discount for local investors, as that would simply be giving away value from those ratepayers who can’t afford to participate in the share offer.
“The preference will be at full price,” he said. “If you can afford to buy shares you will pay full value.”
Ngati Pahauwera manages more than $13 million of investments, alongside the 15,500-hectare Mohaka forest, which it leases to Pan Pacific Forest Products. It also manages about 3,500 ha of farm land, according to its website.
It was among relatively few organisations and companies to lodge formal submissions. Of those that did, many urged the council to accelerate the port’s development without expressing strong views on the funding and ownership options.
Napier City Council favoured the share sale option, but suggested its size should be limited to meet only the port’s immediate capital needs.
Napier’s port needs to expand to cope with massive growth in apple and log exports from the region and the increasing demands of the cruise ship industry.
It handled about 2.2 million tonnes of logs in the year through September, 37 percent more than the year before, and 13.5 million cartons of apples. Total tonnages have increased 25 percent during the past two years.
The port, which expects to turn away as many as seven cruise ships next year, recently gained resource consent for a $142 million berth extension to reduce congestion. It wants that commissioned by 2022.
Roger Dickie NZ manages more than 20 pine forests in Hawkes Bay and a further 12 in the Wairoa region, all of which use the port.
It noted that five of those forests are currently harvesting and another eight are due to start during the next 12 months.
“We are currently experiencing significant delays getting our products onto ships and we only see this problem escalating as we bring more forests to harvest,” the company said in its submission.
“This is increasing costs and therefore reducing returns to our forest investors. Having logging ships removed from port to allow cruise ships access is not acceptable for our company and investors. We feel that significant upgrades to the Napier port are essential and cannot happen soon enough.”
In October the council indicated the share sale could raise $181 million – leaving the council with $83 million after port-related debt of almost $87 million was settled and sale costs of about $11 million were accounted for.
It had earlier favoured the option of leasing the port to an international operator – given that could have brought in $466 million – but became concerned at the risk that came with a 50-year contract and the scale of change a new operator might bring in.
The lease option was backed by only about 70 of the submitters, including John Loughlin, chair of the Meat Industry Association, Powerco and fruit packer Eastpack.
Loughlin said it was the council’s responsibility to get best value for ratepayers and to ensure an efficient port for the region’s businesses.
A partial sale could not maximise the value of the port, while leasing the port to a concession partner – such as an institutional investor or a strategic operator – was likely to attract a significant premium in the current market.
“Globally, prime infrastructure investments such as the port are trading at record prices. Asset concessions have also drawn very strong prices in Australia. A long-term lease on appropriate terms preserves ownership of the asset in the region and transfers operating risk away from ratepayers.”