Sharechat Logo

KiwiRail writedown to add $1.8 bln to government operating deficit

Wednesday 27th June 2012

Text too small?

KiwiRail is to be restructured, with its land holdings shifted to another entity, with a writedown of some $6.7 billion that will result in $1.8 billion being added to the government’s operating deficit this financial year.

As part of KiwiRail’s turnaround plan KiwiRail’s freight, infrastructure, passenger and ferry businesses, rolling stock, rail infrastructure, plant and equipment will be transferred to a new state-owned enterprise while NZ railways Corp will hold 18,000 hectares of rail network land, for which it will expect no financial return. The changes will be made as at Jan. 1 next year.

This will result in the commercial arm of KiwiRail carrying assets of between $1.1 billion and $1.3 billion, down from about $7.8 billion currently, chairman John Spencer said.

The government will also convert $322.5 million of KiwiRail debt to equity in the SOE.

The changes “will allow the company to account and report in a way that more fairly reflects its commercially-focussed rail and ferry business,” Finance Minister Bill English and SOE Minister Tony Ryall said in a joint statement.

The proposal was first flagged at the railroad’s annual meeting in November. Of the $6.7 billion writedown, about $4.9 billion will be covered by an existing asset revaluation reserve and the remaining $1.8 billion will be written off.

“Under this approach, the $1.8 billion write off would be added to the government’s operating deficit for the current financial year,” the ministers said. The final position will be confirmed in the next few months.

Spencer said the changes will result in “a much more realistic valuation of the company’s assets, which will greatly assist KiwiRail in meeting its commercial objectives and provide more discipline in driving improved performance.” The changes mean the carrying value of KiwiRail’s assets reflect “the revenue they generate.”

The composition of the new boards of the KiwiRail SOE and NZRC haven’t yet been decided though they are likely to include “a majority of common directors,” KiwiRail said.

English and Ryall said the Turnaround Plan “remains a difficult task.”

“While good progress has been made in lifting freight volumes, there is no doubt KiwiRail has a long way to go before it achieves the government’s objective of supporting itself,” they said.

In February, KiwiRail said full-year earnings would miss the target in its statement of corporate intent of $139.5 million on an ebitda basis. Earnings were expected to be in the range of $105 million to $115 million, though that was before any writedown.

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

PCT - Delivering on strategy underpins strong operating result
KFL - August 2020 monthly update
BRM - August 2020 monthly update
MLN - August 2020 monthly update
Further COVID-19 Restrictions at SkyCity’s New Zealand Properties
FY20 results guidance met, Results date, Banking Facility
Sky sells OSB assets to NEP NZ, secures 10 year partnership
NZX fully operational - announcement re COVID-19
Heartland Market Update
Steel & Tube Fy20 Trading Update

IRG See IRG research reports