The Government has written down the value of KiwiRail's land and network assets from $13.4 billion to $6.7b and converted $322.5m of debt to equity in a major restructuring of the state-owned rail company.
The change will hit the Budget deficit adding another $1.8b of red ink to the expected operating balance which on Budget day was forecast to be $10.6b deficit for the year to June 30.
Finance Minister Bill English and SOE Minister Tony Ryall said the balance sheet restructuring was "another step towards putting the company on a more commercial footing under its challenging Turnaround Plan".
They said the Government was committed to ensuring KiwiRail could fund its business on a commercial basis.
There were two main parts of the restructure:
* New Zealand Railways Corporation would continue to hold the 18,000 hectares of rail network land, from which no financial return will be expected.
* From 2013, KiwiRail's freight, passenger, infrastructure and ferry businesses, together with rolling stock, rail infrastructure and plant and equipment, will be transferred to a new state-owned enterprise.
The write down of KiwiRail's land and network net assets from about $13.4b to about $6.7b, and the debt-to-equity conversion would leave KiwiRail with a balance sheet that better reflected commercial reality and give the company an opportunity to earn a return over time, the ministers said.
"After the previous government bought back the rail network infrastructure for $1 in 2004, the company's assets - excluding land - were revalued upwards in 2007 by around $5 billion to reflect replacement cost.
"The changes we're announcing today will allow the company to account and report in a way that more fairly reflects its commercially-focused rail and ferry business," they said.
Of the $6.7b net asset write down, about $4.9b will be covered by reversing an existing asset revaluation reserve. The remaining $1.8b will be written off.
The Government wants the changes reflected in both the Crown's and KiwiRail's financial statements for the year ending June 30.
"Under that approach, the $1.8 billion write off would be added to the Government's operating deficit for the current financial year. The final position will be confirmed over the next few months before the annual accounts are published," the ministers said.
"However, because it is a non-cash write down, it will not affect the level of core Crown net debt and the Government's borrowing programme will not change."
They said KiwiRail's Turnaround Plan remained 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. We remain focused on giving it the opportunity to do this within clear fiscal parameters, so we can recover value from the cost we inherited from the previous government."
- © Fairfax NZ News
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