Christchurch council has many asset options
Analysts say Christchurch City Council has a multitude of options in freeing up $400 million of capital from its investment arm.
Christchurch Mayor Lianne Dalziel says the Christchurch council is considering releasing up to $400m from its commercial and investment arm, Christchurch City Holdings Ltd (CCHL) which has local port and airport ownership.
One analyst pointed to Port of Tauranga, majority owned by the Bay of Plenty Regional Council, as one example of a company that has been successfully floated to free up funds.
Port of Tauranga, listed on the NZX and 55 per cent owned by the regional council, is one of the top performing companies in New Zealand, says Craigs Investment Partners head of private wealth research Mark Lister.
For example, it has performed better in the last decade than Ports of Auckland which remains 100 per cent council owned, he says.
The council's plan with CCHL is aimed to reduce its funding shortfall, which has been calculated by investment bankers Cameron Partners to reach up to $883m by 2019.
Details on how that $400m could best be extracted from the companies, which include Christchurch Airport and Lyttelton Port of Christchurch, are still to come.
There has been talk of commercial partners such as Ngai Tahu being invited to take a stake in the "rainy day" assets.
But councillor Raf Manji said it was early days in terms of how the capital would be freed up. CCHL would do initial scoping work on "a range of options" that could be taken to the wider community for further discussion.
"There are probably some options that people haven't thought of but CCHL has done a lot of work over the years for such a time, and obviously the individual companies will have done their own work around how to optimise their own balance sheet."
CCHL would likely come back to council with capital options for an August 28 meeting, Manji said.
Dalziel has said the council is adamant it wants to retain control of its key infrastructure assets - the airport, the port, and Orion, an electricity lines company.
The public will be consulted on all options under the council plan.
CCHL also owns fibre network Enable Services Ltd, Red Bus and infrastructure services company City Care.
Lister said listings by initial public offers (IPOs) of shares was one way forward.
Doing this on individual assets, possibly through partial selldowns, was probably the best option. "I guess [Christchurch city] are doing the right thing by looking at all options. There might be a mixture of [sales] outcomes," Lister said.
Through CCHL, the council owns assets worth an estimated $2.6 billion.
Ernst & Young managing partner Bruce Gemmell said there would likely be a further scoping study by the council on how to extract the $400m.
There would be a number of ways to do this. For example, Orion, which had relatively low debt, could take on further debt that could be released by CCHL to the council.
Another method would be to partially sell assets together or separately. Even a listing of CCHL or part of CCHL via an (IPO) of shares in that entity was possible.
"[They'll likely] do a market assessment of what the most appropriate way of releasing that capital is from a markets perspective and also from a company perspective," Gemmell said.
"There will be all sorts of considerations around. Do we sell an asset? Do we sell a part of an asset? Do we bundle a couple together and sell those two?"
Getting the highest value for individual CCHL assets could be viewed like the auction of a house, with the council getting valuations then marketing the assets to interested parties to get the best offer.
"These things won't go on the market at a price, they will go on the market through a process."
However, if there was an IPO the shares in the assets to be listed would have a set price, Gemmell added.
"[In general] in my view I think it's a very, very sensible way for the city to move through a process of rebuilding itself."
KPMG managing partner Alex Skinner said it was important for the council to maximise the amount of money it could attract, whether it was for the entire portfolio or individual assets.
He noted that the funding "gap" would not emerge until 2017, giving the council a chance to go out and talk about the capital raising strategy.