Partial assets sale and investing in new ones could boost council coffers by extra $450m

Tuesday, 12 December 2023

Selling some of Christchurch’s assets could deliver the city an extra $450 million over the next decade, the council’s investment company says.

Christchurch City Holdings Ltd (CCHL) is urging the city council to cede control of its strategic assets, including the airport and Lyttelton Port, so CCHL can increase dividends.

It is CCHL’s strongest play yet to convince the city of the merits of changing the way the its assets are managed.

CCHL chairperson Abby Foote said the board is not proposing a large-scale sale of assets and it is important people are clear on what CCHL is and is not proposing.

“The proposal is committed to growing the city’s pool of assets, rather than shrinking it, with no reduction in the amount of capital invested by ratepayers in CCHL’s pool of assets.”

In a letter to mayor Phil Mauger and interim council chief executive Mary Richardson, publicly released late on Monday, Foote and CCHL acting chief executive Paul Silk outlined two options for managing assets, including keeping the status quo but with an additional push to lift performance.

However, the status quo was not recommended by CCHL because it did not meet the council’s desire for stronger dividends, or a requirement to repay the company’s $2.3 billion of debt, Foote and Silk wrote.

CCHL wants the council to adopt an “active portfolio manager” approach, which would give it the ability to attract external capital and invest in new assets.

This option would include a set of “guardrails”, but exactly what those would be was not clear.

CCHL only said those safeguards would “preserve the public interest in accessing sustainable, inclusive and affordable economic infrastructure assets”.

Foote said CCHL had put a great deal of work and detailed analysis into developing the recommendation, and that it was in the best long-term interests of the city and its residents.

That option was expected to bring in just over $1 billion worth of dividends between now and 2034, $450m more than current forecasts.

The enhanced status quo option was predicted to bring in $783m worth of dividends during the same period - $227m less than the recommended option.

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.

CCHL’s recommendation has been made following a council decision last year to conduct a strategic review of assets after a report by investment bank Northington Partners found the companies were “significantly under-performing”.

The council will decide at a meeting on Wednesday whether to develop a business case for CCHL’s recommended option.

If it goes with CCHL’s plan, the council would have to remove the companies from the strategic asset list, but to do that it would first need to go through a special consultation process as set out in the Local Government Act.

Assets on the list are protected from any sale, partial or full.

The council had always intended to consult the public on the future of its assets during consultation for its draft 10-year budget, the long-term plan (LTP), early next year.

But in a report to be discussed on Wednesday, Richardson said it was not feasible to include a substantial proposed change to CCHL’s operating model as part of the LTP, given the level of public interest and scale of work required.

Should the council decide this week to go with CCHL’s recommendation, Richardson proposes a separate consultation to be done in July, after the LTP is completed.

However, Foote and Silk believe the consultation could be done as part of the LTP, saying they had legal advice to back them up.

They said that up until two weeks ago, there had never been any suggestion from the council that CCHL’s recommendations would not be included in the LTP.

Last month the council lost its chief executive Dawn Baxendale, who resigned and left almost immediately. Its chief financial officer Leah Scales also resigned.

Labour-aligned councillor Jake McLellan said the case put forward by CCHL had not been compelling to date.

“I think it’s disappointing to characterise the assets as under-performing. Comments like these talk down their market value and don’t reflect the full picture.”

McLellan said this “narrow and short-term view” did not consider land value growth and the recent impacts of Covid-19 on assets like the airport.