Dividends to council rise steeply
The Christchurch City Council's investment arm may have to borrow to meet higher dividend commitments of $140 million over three years to the council.
Christchurch City Holdings (CCHL), which oversees the council's trading companies such as Orion and Christchurch Airport, promised to step up dividends after the earthquakes.
Its new statement of intent for the next three years from July 1 this year to June 30, 2016, forecasts dividends of $46m, $46m and $48m to the council.
It is a significantly higher level of ordinary dividends than before the quakes, when dividends ranged from about $30m to $35m each year.
CCHL's profits for the three years are forecast to be $33.1 m, $37.6m and $43.1m. CCHL will need to borrow $26.2m to meet its commitment to the council, unless it receives more dividends from the council's seven trading companies, increasing its profits.
CCHL chairman Bruce Irvine confirmed CCHL would borrow to meet the gap between its forecast profits and the dividends if needed.
He downplayed borrowing, saying the trading subsidiaries' dividends might rise.
"We believe that there is some movement in some of those potentially, so we may not need to borrow. It may be that in fact we get more.
"We have committed to the council a certain level and we will pay that. If we have to borrow a small amount, and it would only be a very small amount, to get us through we would, but we can do that.
"But I anticipate that we will probably get further dividends from our subsidiaries over that period."
Asked if CCHL had borrowed in the past to pay dividends, he said there were probably years where it might have been done before he became chairman at the end of 2006. CCHL's overall debt was not high, so it could take on the extra, Irvine said.
Asked if CCHL was under pressure from the council for the higher returns, Irvine said after the earthquakes CCHL had agreed to increase its dividends to the council.
"We offered to do it. They came back. We've agreed on what the level should be. So it's not a question of they came to us and demanded that we put higher dividends in or anything."
CCHL knew it had the capacity to boost its dividends, he said. "So no, it's not pressure. It's just a good commercial outcome really."
The subsidiaries had to balance their need for capital with CCHL's commitment to provide more dividends to the council. "Those levels of dividends don't put any stress on us," Irvine said
If CCHL did have to borrow, the amount was not significant compared with its assets, he said. The assets of eight companies it supervises are valued at $2.4 billion with about $1.38b of that being equity.
AT A GLANCE
CCHL commits to $140m of dividends for three years to CCC.
CCHL's forecasts combined profit for the three years of $113.8m
The gap, $26.2m, may have to be borrowed.
CCHL said that is not a significant amount.