Sometimes the Invercargill City Council’s finances are “really unsexy” but the public still deserves to know what’s going on with debt levels, say those who crunch the numbers.

Councillor Darren Ludlow was approached yesterday by the Southland App to explain a media advisory released this week confirming that a $100 million cap on borrowing has remained in place.

Cr Ludlow chairs the council’s performance, policy and partnership committee which decided in February, with public excluded, to retain the existing lending limits imposed on the council’s 100% owned investment company, Holdco, and that Holdco should hold all of the council’s debt.

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“The debt sits where it should be . . . It appears complex from the outside but it is a simple matter,” Cr Ludlow said.

“Staff wanted a media release written [after the decision was made] but it is really unsexy, so it came out as an advisory . . . perhaps it might be worth a little something,” Cr Ludlow explained.

The committee was obliged to consider the amount of uncalled capital available to the council to spend on projects and it decided, unanimously, to keep the $100 million cap. This was later approved by the full council, he said.

For Holdco to stay under that cap, it would sell off some it its existing debt back to the council, which was a process that was hard to understand, he said. 

“Thick and complex” reports were considered but in the end, councillors had no issue with the recommendations by Holdco general manager Andrew Cameron and council finance and assurance group manager Michael Day, Cr Ludlow said.

Mr Cameron told the Southland App he “doubted there was a major story in a broad sense” but “the good news story” was that Holdco would be repaying $30 million the council borrowed several years ago to purchase a stake in the Aniwhenua hydro-electricity scheme near Rotorua. That purchase had pushed Holdco debt up to about $90 million.

The repayment of the $30 million debt should be made possible by the sale of Invercargill City Forests to an Australian company, once the Overseas Investment Act process has been completed.

The repayment should keep Holdco well under the $100 million debt cap.

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Mr Cameron said during discussions the parties had been conscious that the information should be available to the public, which was why it had now been released.

Historically, when attempts were made to change uncalled capital, it had been contentious in the public space, but Holdco was not requesting that the lending limits be changed, he said.

Holdco owns Electricity Invercargill Ltd and Invercargill City Forests Ltd; it also owns 97.2% of Invercargill Airport.

Mr Cameron’s and Mr Day’s reports also traverse the council’s investment into the Invercargill city centre rebuild.

The council invested $25 million in Invercargill Central Ltd in 2019. 

In 2020, the council resolved to invest another $21 million in the rebuild, reduced to $15.5 million after the Government agreed to invest in it as a “shovel ready” project.

At this stage, only $13.5 million in additional council funding has been invested in the rebuild, because of the Government’s investment. 

In the future, both the council and developer O’Donnell CBD Ltd “both have obligations to invest further funds in the event of cost blowouts or funding shortfalls”, the reports say.

Mr Day said for Holdco’s borrowing to remain within the $100 million external debt cap set by the uncalled capital it must: 

“1. Repay the current $30 million loan [re Aniwhenua] from Council.  

“2. Council must convert the $13.5 million loan to equity. 

“3. Purchase a further $2 million shares in ICHL [Holdco] when required. 

“This would leave ICHL with approximately $72 million of debt, increasing to $88 million by the end of 2021.’’ 

Mr Day told the Southland App the key issue was to outline the commercial relationships between the council and Holdco.

The arrangements meant the council-controlled company could progress big projects, within the limits of borrowing, he said.

Last year, Australian-based forestry investor New Forests confirmed it had entered into an Overseas Investment Office process to purchase the plantation assets of Invercargill City Forests Limited.

Some parts of the reports by Mr Cameron and Mr Day have been redacted to protect commercially sensitive information, but they are now available to the public on the council website.

Read the reports: ‘Invercargill City Council Treatment of Invercargill City Holdings Limited – Uncalled Capital’ and ‘Invercargill City Holdings Limited – Uncalled Capital’ HERE.