Ports of Auckland owner faces debt timebomb

A $105.5 million debt timebomb is putting pressure on Ports of Auckland owner Auckland Regional Holdings to inject cash into the company for the first time.

The money must be repaid by December 18, and Ports of Auckland chief financial officer Wayne Thompson told the Sunday Star-Times he is "highly confident" the debt will be refinanced in time.

Analysts and industry sources have welcomed those assurances, given the fact that the $105.5m debt has blown the Port's current liabilities out to $131.3m, more than four times its current assets of $28.3m and, according to the textbooks at least, a position of significant technical insolvency.

There is speculation the balance sheet crisis was a factor in the departure of Ports chairman Gary Judd, forcibly dumped by ARH just over a week ago.

In the four years since it bought the Ports shares it did not already own, ARH has stripped out more than half a billion dollars from the former listed ports company, earning the investment arm of the Auckland Regional Council the sobriquets of "corporate raider" and "asset stripper".

Market sources speculate the advice Judd gave ARH and which it "did not wish to receive", was that Ports was hobbled by debt as a result of ARH ownership, that Ports needed new equity, and that as sole shareholder, ARH had to step up.

One source said ARH had managed its Ports investment "abysmally".

"They have a dividend policy that doesn't provide for enough investment in the port at a time when it needs to expand, and have totally misread or mismanaged the ability of the Ports of Auckland to provide the income ARH wants."

Repayment of the $105.5m debt is part of a wider capital structure review being undertaken by Ports of Auckland, which will look not only at debt and equity levels, but also ways in which the shareholder, as well as banks, can meet those demands.

Getting its head around the prospect of actually putting money into Ports of Auckland, and not just stripping it out, is not the only problem confronting ARH.

It has so far set its face against Ports raising equity itself by issuing new shares to another investor, because it wants nothing less than 100% ownership of its supposed cash cow.

Nor can ARH issue shares itself; it is an investment management business and not a company.

But ARH chief operating officer Peter Casey denies its only option to raise equity is to sell some of its poorly performing investment assets at the worst possible time.

"We have previously talked of having a level of debt on our balance sheet, though that is not in our current long-term funding plans," he said. Critics said a poorly performing balance sheet would limit ARH's capacity to raise debt, in any case.

Casey said Ports was ARH's largest investment, "and we will do what we have to to ensure that it is on a sound financial footing as a long-term provider for the Auckland and national supply chain".

Ports of Auckland's debt levels have increased significantly since ARH became sole shareholder.

Four years ago, and in a different economic environment, the company's balance sheet was considered "lazy", and more debt was seen as appropriate.

Its debt has grown from $146.4m in 2005, when ARH bought out the company, to $362.1m in 2007 and $355.5m in December.

The $105.5m debt was originally part of Ports' long-term bank loan facility, but the board decided not to roll it over in December a decision that forced its need for capital to the top of the agenda.

- © Fairfax NZ News