Late last year Infrastructure New Zealand, in partnership with Aurecon, released a report that should be essential reading for those intending to stand for council at this year’s local body elections that open for voting in September.
Titled Unlocking Value: Recycling Our Infrastructure Assets To Grow New Zealand, the paper explores the topic of asset recycling; partnering with the private sector on existing public assets and “recycling” cash back into infrastructure communities need.
It explains that existing assets are monetised to release capital and recycled to better use infrastructure. New or upgraded infrastructure delivers on public outcomes needed without raising debt.
Asset recycling differs from privatisation as it “recycles” capital back into higher performing infrastructure.
The New Zealand public markets can help with this by offering councils options that do not burden ratepayers in needing to pay for increased levels of debt.
Napier Port – a funding success
Utilising New Zealand’s public markets provides another tool in a council’s toolkit alongside rate hikes, increased levels of debt, selling ground leases, development contributions and user-pays.
Our markets cater for a range of funding options to raise capital whether it be an equity listing or raising debt. In 2024, $15.8 billion of capital was listed or raised on the NZX. This highlights the value of being NZX-listed in a capital-constrained environment. Each council may have different requirements for why it needs to access capital.
For Napier Port, which was fully owned by the Hawke’s Bay Regional Council (HBRC), it was about how it could expand its physical operation, diversify its risk and increase profitability – all without increasing the amount ratepayers would have to pay.
HBRC and Napier Port Holdings explored multiple options, including private investment, leasing to an international operator, and an Initial Public Offering (IPO). However, retaining majority public ownership was a key priority, making the IPO the preferred strategy.
They consulted extensively with local stakeholders – including politicians, businesses, employees, local iwi, ratepayers, community groups, shareholders and media.
In December 2019, Napier Port Holdings listed 45% of Napier Port on the NZX. The IPO unlocked $234 million of capital, enabling Napier Port to expand its berth capacity.
Importantly, the Napier Port IPO has delivered substantial benefits, enabling critical infrastructure expansion, financial diversification for the Hawke’s Bay Regional Council, and economic growth for the community. Dividends paid to shareholders are higher than before listing.
The Napier Port example shows that asset recycling is not about selling down the family silver, it is actually about growing the family silver, freeing up capital that can be better used elsewhere, and all to the community’s benefit. This was community leadership in action, creating a positive legacy where regional councillors should be applauded for their strong governance.
In the past couple of years Auckland Council has demonstrated similar pragmatism with the sell down of its 9.71% stake in Auckland International Airport into a professionally run, council-controlled organisation (CCO), the Auckland Future Fund.
That fund is expected to provide additional funding to Auckland Council of around $40m of cash returns per year – all without raising rates or increasing debt.
Where else could asset recycling help?
There are many councils throughout New Zealand that would benefit from asset recycling.
The Bay of Plenty Regional Council is looking to reduce its 54.1% shareholding in the Port of Tauranga to ensure it better diversifies its investments through its commercial arm, Quayside Holdings.
Christchurch last explored this in 2023 but councillors decided not to take the next step. The question for that city is: does the council through its investment subsidiary really need to own 100% of Lyttelton Port, 75% of Christchurch International Airport (the Crown owns the other 25%) and 89.3% of Orion Group (Selwyn Council owns 10.7%)? What direct benefits are the city and its residents gaining from this level of ownership at a time when the city will need additional capital for infrastructure to support 32,000 extra people in the next decade?
Likewise, does Dunedin City Council need to keep 100% ownership of Aurora Energy? The sale proposal on the council table last year was aimed at reducing debt and creating an investment fund that could produce millions of dollars each year. That ultimately was not supported.
The lines company has reported forecast debt level of $581m by the middle of this year. It is an asset that requires significant capital investment – money that may have to come directly from Dunedin ratepayers. A partial float could facilitate the growth capital Aurora requires without burdening ratepayers and, at the same time, retaining majority control for those who see it as a “strategic asset”.
Then there is Wellington International Airport. In October last year Wellington City Council was looking to sell its 34% stake in the airport to establish a new perpetual investment fund. That money ($492 million) was earmarked to help the city recover following a future natural disaster, address the council’s insurance risk and reduce reliance on future borrowing. That too, narrowly failed to get the green light from councillors and now Wellington has a significant challenge on how to pay to improve its infrastructure.
Without a solution, this financial burden could fall on ratepayers.
The Wellington, Christchurch and Dunedin examples are in many ways a community communications and engagement challenge. Councils keen on exploring asset recycling need to ensure they achieve community stakeholder buy-in and goodwill. And that includes engaging with local stakeholders and media and being open with them on what the process is and the outcome that is being sought. It is all about context and councils should not be afraid of debate if they have done their homework.
That is where HBRC succeeded in Napier: it specified exactly where – and how much – of the recycled capital would go into specific infrastructure.
If councils do this, it then becomes a discussion of gaining something new from something existing. It needs to be that granular to ensure ratepayers and stakeholders understand what the outcome of the proposal will be. Just saying the money gained from partially listing an asset will go into a consolidated council fund is unlikely to pass the sniff test with ratepayers.
Transparency and outlining the funding alternatives for paying for community infrastructure – either more debt or significantly higher rates – are key. Otherwise, the long-term effect will be intergenerational inequity – the grandchildren of ratepayers will be saddled with debt paying for facilities granny and grandad directly benefited from.
Using public markets to raise capital to fund growth, or to recycle capital back into high priority infrastructure is a win-win.
Also, once listed, councils have the option to allow these businesses to raise secondary capital through the market to fund further growth and opportunities.
Councils are more than just rubbish, roads and rates. Arguably they play a more important role in our daily lives than central government. The water you use in the shower, the local roads or trains you use to get to work, the parks, pools, playgrounds and halls where families play and exercise – they are all the responsibility of a council.
And that infrastructure has to be paid for. It is simply unaffordable and disingenuous to say that ratepayers should solely foot the bill.
Councils also have a key role to ensure they create a town or city where people want to live and businesses want to invest, grow, hire more people and, in turn, create wealth and value for their community. There is no magic money tree to pay for all of this.
Utilising public markets to raise and recycle capital provides practical options for council funding. It is transparent, democratic and, as we have seen with Napier Port, hugely successful for all.
● Mark Peterson is Chief Executive of the NZX. NZX is an advertising sponsor of the Herald’s Capital Markets and Investment report.
