Holdco dividend to ICC in doubt

Monday, 15 April 2019

Darren Ludlow, the Invercargill City Council finance committee chairman and mayoral candidate, says no projects will fall over if the council does not get its budgeted for $2m dividend from holding company Holdco.

The Invercargill City Council may not receive as big a dividend from its holding company, Holdco, as it budgeted for this year.

The council has budgeted for a dividend of $5.8m from Holdco - an investment company 100 per cent owned by the council which owns Electricity Invercargill Ltd, Invercargill City Forests Ltd and 97.2 per cent of Invercargill Airport.

Holdco has already paid the council an interim dividend of $3.8m but is undecided on whether to pay the remaining $2m dividend.

The council's interim finance director Dave Foster said Holdco had to consider the ongoing position of the organisation.

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Though the council was budgeting for a dividend of $5.8m, a lower dividend would not have an impact on the council's budget for this year, he said.

'Holdco is still considering whether a further dividend will be paid to council this year, and a decision from Holdco is expected by May.'

Holdco was in a 'good financial position', he said.

However, both Holdco and the council needed to collectively ensure Holdco did not create a 'cash flow crunch' by paying a dividend which was too big.

'That is not in the interests of the ratepayer,' Foster said.

Minutes of a council finance committee meeting on February 26 refer to Foster being asked whether Holdco was still deliberating on its final dividend, or whether the $2 million was the final dividend amount.

Foster explained that Holdco was uncertain on which way it would go.

Holdco had a cashflow crunch in the short-to-medium term and the board was taking steps to address that, the minutes say.

The council needed to decide if it wanted to take a dividend from Holdco.

If council pushed Holdco too hard the board may have a crunch in the longer term, if not, Holdco would have a short-term issue, the minutes say.

Holdco chair Brian Wood said Holdco would decide on its final dividend for the council at the end of the financial year, when it knew the performances of the council's subsidiary companies.

'We can't make a decision … until we have seen those figures and they aren't yet available.'

The $5.8m dividend figure was in Holdco's statement of intent but was never guaranteed, he said.

'That's the goal we try to achieve in the financial year but it depends on the actual results of the operations … it's up to the boards of the subsidiaries to deliver the results they said they would deliver.'

The council's finance and policy committee chairman Darren Ludlow said the additional dividend would always be preferable.

When asked how badly the council needed the $2m, Ludlow, who is standing for the mayoralty in October, referred Stuff to Foster's answer, suggesting the council would cope without it.

No projects would fall over if the $2m dividend was not paid, he said.

'If any business is in a position to pay a dividend, it does.

'If it's not in a position to pay a dividend, it shouldn't, and as I understand it, it's a process that hasn't been finalised as yet.'

The council had no say in what Holdco's predicted dividend was at the beginning of the year, he said.