$2.3b of debt: Christchurch’s ‘unsustainable’ asset problem

Monday, 27 November 2023

Christchurch’s publicly-owned assets face an “unsustainable” future as the city council’s investment company grapples with the cost of servicing $2.3 billion of debt.

Abby Foote, the chairperson of Christchurch City Holdings Ltd (CCHL), told the company’s first publicly-held annual meeting on Friday, ratepayers could not afford to subsidise the city’s assets.

“Bottom line, these assets exist in a very different context from 30 years ago. The status quo - simply doing what we’ve been doing - is now unsustainable, both for these companies’ futures and for the city and its finances.”

CCHL owns $5.8b worth of assets on behalf of the city council, including 100% of Lyttelton Port Company, fibre broadband company Enable, construction and maintenance business City Care and recycling and waste company EcoCentral. It also owns majority stakes in electricity lines company Orion and Christchurch Airport.

The council decided last year to conduct a strategic review of those assets after a report by investment bank Northington Partners found the companies were “significantly underperforming”.

The decision was seen as the first step towards selling some of those assets, something Mayor Phil Mauger promised he would not do during last year’s election campaign.

In her first major public comment on the future of the companies and CCHL, Foote said the current environment left no easy choices.

“The sums don’t neatly add up.”

CCHL holds about $2.3b worth of debt - double that of a decade ago. It is in part a consequence of the $440 million of debt it took on to provide additional money to the council between 2016 and 2019 to aid earthquake recovery.

The cost of servicing the debt was now significantly higher than in the past, Foote said.

The debt and high interest costs meant CCHL faced constraints on its ability to borrow more, preventing it from investing further in the group.

Foote pointed to Northington’s finding that the companies would not deliver the dividends that current generations should be able to rely on, leading to higher rates.

Without change, there would be no money to invest in climate change resilience, the energy transition that the public expected, technological change, shifts in consumer behaviour or asset growth, Foote said.

CCHL notched up a $99m net profit after tax during the last financial year, from a target of $68m. It provided $32.4m of dividends to the council. In 2018 the ordinary dividend was around $50m.

Paul Silk, CCHL acting chief executive, said the problem was complex.

“It is not solved by keeping things the same, nor is it solved by selling everything and walking away. It is a problem that requires flexibility to solve it.”

Silk described the debt as a handbrake, but said CCHL had a shareholder that wanted the company to lift dividends sustainably and a board that wanted to repay debt.

It had companies that wanted to know they had access to capital to invest in their growth and a community that wanted it to address the impact of climate change.

Foote said CCHL was assessing its options.

“It’s the right question to ask and I’m optimistic about the choices in front of us.

“Ultimately the people of Christchurch and their elected representatives will decide. These are their assets and this is their choice.”

The public will have a chance to have their say as part of the draft 10-year budget, the long term plan, which will be released in late February or March.

There is already strong opposition in sections of the community to selling any of the city’s assets.

At a meeting earlier this month, organised by the Keep Our Assets group, John Minto said he did not believe the council had a mandate to sell assets since no councillors campaigned on it.