Council can 'have its cake and eat it' by getting cash from asset sales

Friday, 31 August 2018

Asset sales could help pay for anchor projects in Christchurch. The new library has cost almost $100 million.

The Christchurch City Council looks set to re-examine the viability of selling some of the assets that paid it $192 million in dividends over the last year.

Possible partial asset sales would help fund anchor projects, bring down debt and relieve the burden of an expected 53 per cent rates rise over the next decade.

Christchurch City Holdings (CCHL) controls the council's interest in businesses such as Christchurch Airport, Lyttelton Port and broadband provider Enable.

Collectively, the eight firms owned or part-owned by the council have assets worth more than $4 billion, up from $3.6b in the year to June 2017.

* Christchurch Airport posts a $64.6m profit thanks to tourism, freight and property development

* Mayor wants 'intelligent conversation' about selling assets

* Christchurch City Council debt to grow 75 per cent to $2.1 billion

* Christchurch City Council recommending fast-tracking cash for stadium, water upgrades and cycleways**

Council finance committee chairman wants a re-examination of the benefits a sale of some of the city's assets could bring.

Rough estimates based on those values suggest the council could make hundreds of millions of dollars from selling chunks of these businesses while still retaining its controlling shares.

Finance committee chairman Raf Manji told Stuff he wanted the council to ask CCHL to arrange an independent analysis of asset sale options, and of how much capital could be released.

Christchurch's anchor projects such as the new convention centre are pushing the council's budget to the limit, with debt expected to rise significantly in the next few years.

'It should really be done every term, [so we are] going to them and saying 'with updated valuation and information, can you do some work and provide some advice back to council on what the options might be if we choose to release some capital through equity rather than debt'.

'Council debt and CCHL debt is rising, it's higher than we would like it to be, and so we need to really keep our options open.'

Mayor Lianne Dalziel previously welcomed the idea of asset sales. This week she said she would like to see how money can be recycled 'to get projects completed that really will spark the city's future'.

She said: 'I am not saying that you would have a fire-sale of assets, you would simply look at at what was required in order to get those things completed that need to be completed in order for the city to really take off.'

Christchurch airport has seen a rise in revenue over the last year, prompting speculation its robust finances could be beneficial to the council's coffers.

Preliminary CCHL figures for the financial year to 2018, released on Friday, revealed its profits rose 16.6 per cent on 2017. Overall revenue climbed from $996m to $1.04b.

Christchurch Airport's revenue grew 10.8 percent to $236m, buoyed by an 8.5 per cent rise in international passenger arrivals. Its net profit after tax was $89m, up 37 per cent.

The airport has an asset value of $1.6b. The council owns 75 per cent of the airport, so selling 24 per cent - to retain a 51 per cent controlling share - could release anything up to $400m, excluding the impact of any debts or liabilities and depending on its value on the open market.

Work on the new metro sports facility is just about beginning. But with rates expected to leap by 53 per cent over the next decade, many residents are worried about how they can pay their own bills.

Income from selling airport shares alone - before any of the other assets are considered - would cover the council's $253m share to pay for the city's long-awaited stadium and still leave money over for other projects.

A sale of assets could also be used to pay down some of the council's net debt, which is expected to rise 75 per cent from $1.2b next year to $2.1b in 2024.

Craigs Investment Partners head of private wealth research Mark Lister said the council could 'have its cake and eat it' by selling assets.

Manji believes there may be room to sell off stakes in the council's major assets to release capital to relieve debt.

'They should be thinking about that because they need the money and they can still have the best of both worlds,' he said.

'It would be foolish to sell them off entirely but they can retain that 51 per cent ownership.'

Christchurch Mayor Lianne Dalziel has repeatedly said she is open to the idea of assets sales.

Lister said the Government got a boost from selling stakes in Air New Zealand and companies such as Genesis Energy and Meridian Energy, as had the Tauranga council with the Port of Tauranga. Such sales raised capital and reaped the benefit of involving private investors.

'All of those businesses have gone on to bigger and better things after going onto the share market.

'Christchurch City Council could have the benefit of majority ownership, with the dividend and earning stream, and ratepayers would still having a long-term interest in the asset.

'These are strategic assets that you don't want to lose control of, but you can raise some money.'

The council's companies are listed as strategic assets, so it would have to consult with the public before deciding to sell.

Manji will take a chairman's report to the finance committee asking for a report within three months.

'Asset values have risen a lot over the last couple of years and it may make sense to take some of that ultimately profit off the table,' he said.

'What we feel is that there is probably some extra value on the balance sheet which may release extra profits.'

Dalziel said she has 'no objection' to freeing up capital from the increased value of the city's asset base.

'I'm not talking about necessarily putting shares on the open market. It may well be [it is] by bringing in a strategic partner who can bring some value to the table…

'I think it's worthwhile going through this exercise of considering what value could be brought to the table with each of our assets - not just thinking of it as a funding mechanism - because you never know what might happen in the future.'