Local government
Auckland residents will have a say on whether their council should sell its $2bn airport assets, but no expert analysis has been conducted on the benefits of flicking or holding the stakes
Auckland Mayor Wayne Brown’s false speculation about his borough’s largest public asset caused a momentary alarm in the stock market, but also drew more attention to his case for selling his $2 billion stake.
His ‘guess’ by the chairman at a full council meeting, given the sale of Auckland Airport’s 18 per cent share that the company was about to launch a capital raise to fund its major terminal expansion, quickly caused trading to halt at the NZX.
“Our 18 percent will be 11 or 10 soon. They’re about to go to a big fundraiser to fund a new domestic terminal,” he said.
As he continued to preside over the debate, the NZX regulator declared a halt to stock trading at the airport, the company issued a statement denying any such increase or plans and Brown himself came back claiming he was simply “assuming or suspecting” that a capital increase was in progress. the cards.
Brown claimed to have made no more than an assumption, and the stock returned to trading after an hour, but his public musings as the head of the airport’s largest shareholder carried more weight and implications than his informal explanation.
The mayor wants to sell the shares, valued at about $2 billion, and use that money to pay off a portion of the city’s $12 billion debt, which would save about $88 million in interest costs over the years. City officials and Brown argue that the airport company won’t pay the city anywhere near that annual amount in dividends, so the shareholding is effectively costing the city many millions a year.
But there was a reason why he publicly raised the prospect of the airport company seeking more capital from shareholders and the market.
Brown’s argument was that because the council could not afford to participate in such a capital increase offer, shareholding would fall, from the current 18 percent to what he calculated to be between 10 and 11 percent.
How he arrived at those numbers is unclear, but that specificity may well have come across to the NZX regulators that he was aware of a specific value of funds and shares being raised.
He used the council’s lower shareholding percentage to bolster his case for sale: [share ownership] is becoming less and less strategic.”
But with the airport company quickly denying any such capital increase, and thus dilution of the municipal shareholding, that argument immediately faded.
And in the hours of discussion over the 2023/24 council budget that followed, it was not at all certain whether councilors will approve the sale of Brown’s airport shares after the public is consulted from February.
Even those who supported Brown since his election in October heard doubts about the sale.
Mike Lee, an Auckland councilor who returned to the role in the election for two terms, argued that the airport shares had been donated to the council in his past life and no debt had been incurred in building up the shareholding. He questioned the attempt to portray the equity capital as something that costs the council money every year. Other loans had led to the cost of the debt, not the airport.
Lee said that in 2019, pre-Covid, the airport paid a $59 million dividend to the council, and that councilors should be confident that both Auckland’s airport and ports would eventually return to revenue-generating assets.
However, Brown said there was no expectation that the “dividend would come anywhere close to the cost of the debt”. He meant the $88 million a year that could be saved if the entire stock holding were sold and $2 billion was deducted from the total debt.
Councilor John Watson, another Brown promoted to post-election committee chairman, wanted an expert opinion on the airport share sale. “It would be nice to get an investment perspective on this asset, rather than just selling an income-earning asset as it is to close a deficit.”
Another council member, Christine Fletcher, who praised Brown’s clarity and leadership of the budget process, was also “not entirely convinced by airport stocks and would welcome proper analysis in the new year.”
Officials at the meeting told Councilman Chris Darby that the sale proposal in the mayor’s budget had not been subject to independent investment analysis, but that the council’s finance team had relied on open source analysis from market analysts. Darby said no analysis had been made of the strategic benefits of holding the stock, despite suggesting it early in the budget round.
He managed to include an option by the council to reduce his stake to a 10 per cent ‘blocking interest’ in the airport company in material to be circulated as part of the public consultation.
The council’s chief financial officer, Peter Gudsell, said: “Staff came to the conclusion that there are no strategic objectives and it just appears to be a financial investment.”
Councilor Daniel Newman saw little merit in owning the airport share. “No one explained to me what the strategy is. We are not participating in any capital raising and for me that does not mean that we are an active strategic partner.
“We just take dividends when they are available. It feels to me like we’re akin to a Canadian pension fund. The airport isn’t going anywhere. It’s a commercial real estate company. If you think you can add value to a commercial real estate company then go buy shares yourself.
Deputy Mayor Desley Simpson wholeheartedly supported Brown’s proposal, saying that even if the airport company started paying dividends up to the $60 million range Mike Lee mentioned, the shareholding still wouldn’t be a net benefit. Simpson also claimed “these stocks cost us about $90 million a year,” citing what is an opportunity cost figure at best.
Late in the budget meeting, as councilors considered the mayor’s proposed letters of expectation to council-controlled businesses, they were shown a future debt map for Auckland Council. It showed that a large majority of current debts and debts for the next four years were fixed. But after that, and if the debt were to be increased, it would be at more expensive, fixed rates.
Brown used that to put pressure again on the sale of stock at the airport. “If you sell the airport shares, it’s the expensive debt you’re saving, not the cheap debt.”
The mayor and 19 councilors voted to approve the proposed budget for public consultation. Only Councilor Josephine Bartley, who believed that the measures unfairly targeted savings from community groups and that councilors had already been mandated by their constituents to make decisions, opposed the release of this budget.