Air NZ sole recipient of 'bespoke' Covid help as others find alternatives to Treasury bail-outs

Friday, 26 June 2020

Some big businesses have knocked on the Treasury's doors seeking Covid help, but so far they seem to have thought better of it.

ANALYSIS A Treasury team tasked with providing tailored financial assistance to 'economically significant firms' struggling with fall-out from the coronavirus crisis has so far had no takers.

Finance Minister Grant Robertson announced in March that the Government could provide tailored help on a 'case by case' basis to companies with annual revenues of more than $80 million a year that it viewed as critical to the economy.

As of April there were 2189 firms that met the revenue threshold.

Robertson did not rule out the Government emerging as a shareholder in a number of cash-strapped private businesses, in return for Treasury bail-outs.

But that now appears unlikely.

Finance Minister Grant Robertson had said the Government's preference wasn't to end up as a shareholder in private firms but hadn't been able to rule it out.

* Government has no desire to own stakes in big firms but wants to 'keep options on table'

* Government could end up part-owning dozens or even hundreds of big businesses

The Treasury engaged consultants from Chapman Tripp, Goldman Sachs and Korda Mentha to advise it on negotiations.

But a Treasury spokeswoman confirmed Air New Zealand was so far the only company to have received bespoke financial support from the Government as a result of Covid-19.

That support came in the form of a $900m debt facility, with an interest rate of about 9 per cent, which the Government could potentially convert into shares in the airline.

The loan to Air NZ was arranged prior to Treasury setting up more formal arrangements to evaluate support for economically significant firms, so strictly-speaking wasn't part of the 'economically significant firms' initiative, the spokeswoman said.

'While a number of firms sought to begin a dialogue with the Crown early in the crisis, most of these businesses have been able to address their own issues,' she said.

'This is attributable to businesses having retained good access to capital and may also be an indication these firms are not seeing the severe or sustained revenue impact from Covid-19 that had been feared,' she said.

The lack of uptake of the 'bespoke' assistance may reflect the fact that the loan to Air New Zealand was no patsy, even though it was an offer that the troubled airline could hardly refuse.

National Party revenue spokesman Andrew Bayly is yet to get an explanation as to why Treasury and Inland Revenue forecast a massive 50 to 60 per cent default rate on the $6.5b of loans they originally expected to issue through the Small Business Cashflow Scheme.

But it is also 'good news' in the sense that it suggests big businesses have been able to get by without the extra help – so far at least.

The Treasury itself argued in an April 21 guidance note that 'bespoke support for a single firm should be seen as a last resort'.

There may be a few more knocks on the Treasury's door down the track, for example from airports as the mirage of a trans-Tasman travel bubble disappears further into the ether.

But, for now, the hiatus continues the strong theme of there being lower-than-expected take-up for a number of government Covid assistance packages – with the notable exception of the well-used wage subsidy scheme.

The Treasury is also responsible for managing the Business Finance Guarantee Scheme under which the Government has agreed to underwrite up to $5b of regular bank lending to businesses.

The take-up of that scheme by the banks has so far been negligible.

While there have been ongoing complaints about 'red tape', there is also evidence to suggest the low take-up reflects the fact that 'normal' bank credit has been flowing more freely than had been feared.

There was further confirmation on Friday that the take-up of the Small Business Cashflow Scheme under which the Government is making zero and low interest loans available to small firms has also been significantly less than expected.

This is perhaps harder to explain.

Government documents released on Friday show Treasury had allocated $6.5b to the Inland Revenue-run scheme on the assumption that all 400,000 eligible firms and sole traders would take-up the loans.

That allocation was later revised down to $5.2b on the still 'conservative' assumption there would be 80 per cent uptake.

But Revenue Minister Stuart Nash said on Wednesday that only $1.4b of loans had been taken by 85,000 businesses nearly two weeks after the original deadline for applications, which has now been extended until July 24.

The loans, which have averaged $16,500, are open to all businesses that qualified for the first tranche of the wage subsidy scheme and carry an interest rate of 3 per cent from the day the loans are issued.

But the interest will be waived if firms pay back loans within a year.

Treasury and Inland Revenue documents indicate they had expected a quarter of applicants to pay back the loans during that first year and a massive 75 per cent default rate among firms that left it longer to repay.

Overall, they were expecting an eye-watering 'overall default rate of around 50 to 60 per cent on the total lending', that would have meant the loans would have cost the Crown $3.4b, the documents state.

It is baffling why the Government could ever have expected such a mammoth default rate on loans it expected to issue to 400,000 businesses and self-employed – the vast majority of businesses in the country.

It is almost as puzzling why neither Inland Revenue nor Nash were able to give National revenue spokesman Andrew Bayly an immediate answer to that seemingly obvious question at the select committee on Wednesday.

One explanation might be that Inland Revenue is not planning to make any serious attempt to chase up defaulters.

But that would make it a grants scheme dress up as loans scheme for business owners 'in the know' – hardly fair perhaps.