Govt unveils Solid Energy bailout plans
The Government has proposed a deal to restructure the debts of Solid Energy, including a $25 million cash injection and another $130m in loans.
Banks which lend to Solid Energy will be required to inject $75m in return for non-voting redeemable preference shares - the same status as the Government's $25m cash injection. This is effectively an interest free loan to the company.
State Owned Enterprises Minister Tony Ryall said the banks were also being asked "to waive some of their rights". A Treasury official said this was the right to apply to place the company into receivership.
If agreed, the Crown will also give three-year loans of $100m, as well as a further $30m standby loan, to be redeemed if required.
In February the Government announced it was in talks with Solid Energy's lenders about restructuring the company's debts, "with the aim of returning the company to a sustainable financial position", Finance Minister Bill English said.
English said at the time that coal prices had "contributed to the deteriorating financial position" which had left the company with debts of $389m, but denied the Government had "specifically" pressured the company to take on more debt.
Today English said the Government could not completely bail out Solid Energy.
"As we have said previously, ministers were not prepared to expose taxpayers to on-going losses if Solid Energy's core business was not considered viable," English said.
''However, we also said that we were prepared to provide support for the company if there was a reasonable chance it could be made viable, and we expected the lenders to also contribute to that recovery."
Ryall said even after the deal Solid Energy "still has a lot of work to do, and market conditions remain challenging".
The process to formally adopt the proposal "is now underway and is expected to be complete by the end of the month," Ryall said.
In a statement, Solid Energy's board said it had agreed in principle to the proposal, while banks and bond holders would be asked to vote on the deal in the next few weeks.
The company said at the end of June its debts stood at $381m, including $286m of overdrafts and $95m of medium term notes.
Chairman Mark Ford said the proposal would allow the "refocused coal mining business to trade its way back to profitability over the next few years", although even this would require more cost cutting as well as an increase in international coal prices.
"We believe that the company has a good operating future and we hope that with the continued support of our shareholder and our funders, we can re-establish the company as a major employer and economic contributor in our key coal mining regions," Ford said.
"These communities have been severely hit by the company's financial misfortunes in the last year, including the loss of more than 700 jobs, and we hope to be in a position to reinvest in our operations when there is a sustained improvement in the market."
The union representing miners, the EPMU, said the deal was a relief to the workers and offered hope for the future.
"We are very pleased with the comments of Solid Energy chairman Mark Ford, who has committed to re-establishing the company as a major employer in communities which have been devastated by job cuts,'' EPMU acting national secretary Ged O'Connell said.
Labour spokesman for SOEs, Clayton Cosgrove, said the deal was too little, too late.
"Kiwi taxpayers shouldn't pay for the Government's bungling. It has been over a year since Bill English and Tony Ryall announced that Solid Energy was in crisis. Over 700 jobs have been lost, one mine mothballed and nothing achieved in the past 12 months.''
"Despite today's announcement Kiwis are still left in the dark on how much the failure of Solid Energy has cost them. National must come clean and tell us the full cost,'' he said.
THE PATH SO FAR
Since announcing its debt problems, the company's activities and spending have come under scrutiny.
Projects, such as growing rape seed for biofuel on high altitude land near Omarama were called into question, as was staff remuneration, with 472 staff paid more than $100,000 in 2012, more than double the amount for 2009.
Saunders Unsworth was paid almost $50,000 to help prepare the company's executives for a grilling before a Parliamentary select committee earlier this year.
In April, when it was revealed that the company's spending on public relations experts had doubled in the four years to 2012, Labour's SOE spokesman Clayton Cosgrove said the company had a culture of excess.
''These guys were spending like drunken sailors,'' Cosgrove said.
In July it emerged that the government had earmarked up to $100 million from the future investment fund - money raised from the partial sale of state owned enterprises - to recapitalise Solid Energy.
Since then the government has warned bankers that if they were not prepared to take losses on the loans, it was prepared to place the company in liquidation.
As a result of public scrutiny, Treasury was forced to release dozens of documents which revealed concerns about Solid Energy had been running for years.
When investment bankers were hired to evaluate whether some state owned companies were ready for the rigours of the public markets if the government sold of 49 per cent, alarm bells were raised when Solid Energy refused to say why its projections for energy prices were markedly higher than virtually any external experts.
The company was placed under "intensive monitoring" in June 2012, after it presented a cost-cutting plan which Treasury did not believe was credible or achievable.
"We are concerned that if management is unable to fully achieve their objectives . . . potential solvency issues could emerge in the medium term, " Treasury officials said in a report to Ryall.
However the government continued to signal weeks later than Solid Energy could still be put up for partial sales as part of the mixed ownership model programme.
This year it emerged that the company had gone to the government with an ambitious plan to expand into areas such as oil and gas exploration, transforming into a national resources company.
Then-chairman John Palmer, who is still the chairman of Air New Zealand, wrote to Prime Minister John Key warning that there could be a narrow window to exploit the opportunity before the world transitioned to renewable energy.
''We are already in the beginning of a transition to a world beyond widespread use of non-renewable resources. New Zealand's resources can provide super-profits and ease this transition. But if global resource scarcity leads to economic decline, demand and prices will eventually collapse,'' Palmer wrote.
Chief executive Don Elder wrote in early 2010 that a resources boom which he had anticipated could "fund all our expectations from healthcare through education to retirement, and lead to New Zealand having one of the world's highest standards of living".