Wednesday 3rd October 2018
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Investors may get a chance to buy $181 million of shares in New Zealand’s fourth-largest container port.
Hawke’s Bay Regional Council is recommending to its 70,000 ratepayers that the council sell up to 45 percent of the Port of Napier in order to free up capital and diversify the council's investment base.
The share sale, one of four options ratepayers will be asked to consider, could raise $83 million for the council after port-related debt of almost $87 million is repaid and sale costs of about $11 million are met.
Other options put to ratepayers include granting a new firm a long-term operating lease, funding the port’s expansion through a combination of borrowing and rate increases, or selling a minority stake to another firm.
Chairman Rex Graham said the port was too vital to the region to have its growth constrained. Listing a minority stake will ensure the council can still meet its other obligations, while retaining exposure to a strategic and growing regional asset.
The listing will also offer ratepayers the chance - through a preferential offer – to hold shares directly in the port, he said.
“This is a good problem we’ve got here,” Graham told councillors in Napier this morning.
“The world is demanding and wanting our produce and the only way to get it to them is through that port.”
If the share sale proceeds it will be the first listing of a port since Christchurch City Council delisted Lyttelton in November 2014. Ports of Auckland, the country’s largest, was delisted by the former Auckland Regional Council in 2005.
Napier’s port needs to expand to cope with massive growth in apple and log exports from the region and the increasing demands of the cruise ship industry.
It handled about 2.2 million tonnes of logs in the year through September, 37 percent more than the year before, and 13.5 million cartons of apples. Total cargoes in the period were a record five million tonnes, having increased 25 percent during the past two years.
The port, which expects to turn away as many as seven cruise ships next year, is currently seeking resource consent for a $142 million berth extension to reduce congestion. It wants that commissioned by 2022.
That is just the start of an investment programme needed to cater for a projected 57 percent increase in export volumes by 2028, driven by more logs and fruit. Total investment in the coming decade is estimated at up to $350 million, including the berth extension, other asset replacement, and growth projects.
Port chief executive Todd Dawson said that, with the port’s current debt cleared, the company would have sufficient headroom to meet its on-going capital requirements of up to $20 million a year after the berth extension is completed.
The council had previously signaled it couldn’t fund the port’s capital requirements and meet the increased spending needed on the region’s rivers and water systems.
It has spent the past year considering its capital structure and its reliance on the port, which accounts for about 76 percent of the council’s income generating assets. The $10 million-plus it has received in port dividends over the past year has also subsidised ratepayers by about $140 a year each and accounted for close to a fifth of the council’s operating revenues.
If the council retained full ownership, the expansion costs would largely fall on ratepayers, as the projected increase in borrowing costs would almost consume the expected dividends.
Councillors today noted there would be little appetite among ratepayers for a 45 percent rate increase.
A working group the council established last year had previously been sceptical that a minority stake listed on NZX would be sufficiently attractive to investors. It had favoured the option of an operating lease.
Graham said councillors had also initially favoured that option, which could deliver more than $460 million to the council upfront for a 50-year lease.
While that model had worked well for some Australian ports, he said there was concern at the aggressive returns a new operator may require, and how the council would manage that relationship long-term.
At Sept. 30 last year, the port had total assets of $329 million, funded with equity of $205.1 million. Papers tabled for today’s meeting show the council values the port stake in its accounts at $291 million.
While the council has approved the sale of up to 49 percent of the business, its intention is to only sell a 45 percent stake.
Nor does the council plan to seek another port company or port operator as a cornerstone investor.
“We’re very confident in the current governance and management of the port,” chief executive James Palmer said.
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