Council backs broadband network

Banks want the Christchurch City Council to pledge a much higher level of security - $650 million - to its investment arm which is funding the construction of a multimillion-dollar broadband network.

It was revealed at yesterday's annual meeting of Christchurch City Holdings (CCHL), the council's investment arm, that the council had agreed to increase its "uncalled capital" to CCHL to $650 million from $350m now.

CCHL supervises and monitors the council's trading companies including Enable, which is building an ultrafast broadband network in a joint venture with the Crown.

CCHL chairman Bruce Irvine said that CCHL's debt was increasing and would peak at $450m over the next eight years.

After the meeting Irvine said the increase in uncalled capital from the council was required by the banks lending to CCHL and mainly because CCHL was funding Enable.

The broadband project is said to cost $440m over the eight-year construction and is one of the biggest investments the city is making.

In March this year Enable said CCHL would raise $220m in debt and inject $51m in equity into the project.

Irvine said increasing the uncalled capital meant CCHL could call on the council for that amount if it required it, but it had never needed the uncalled capital.

Irvine said it was "highly unlikely" CCHL would need that amount, but it was a form of security banks required.

Irvine told the meeting CCHL was "still incredibly happy" with the Enable investment.

The projections Enable put to the council were still sound and it was still working on the basis they could be achieved.

The fibre project is one of the biggest investments the city has made in infrastructure, but CCHL says it will "ultimately" be successful and pay dividends to the city.

The group of eight companies CCHL supervises made a combined profit of $97.3m in the year to June 2012.

Irvine said it represented a 7.3 per cent return, which was lower than its "normalised" return of about 9 per cent, but he thought 7.3 per cent was "outstanding" in the context of the earthquakes.

In the last 15 years CCHL returned after tax a compounded return of 16.7 per cent, in the last 10 years 11.3 per cent and the last five years 9 per cent.

Irvine said the first 15-year return was influenced by the fantastic deal where Orion sold gas company Enerco, but if that was taken out the "normalised" return was about 9 per cent.

The public comments on 3 per cent return of CCHL was the level of dividends CCHL made to the council.

The subsidiary companies in the group had a "significant decline in profitability" because of the earthquakes.

The Press