Whakatōhea Mussels managing director Peter Vitasovich (left) and Regional Development Minister Shane Jones in Ōpōtiki. Crown Regional Holdings has tipped $52m into the firm, despite its long run of losses.
Regional Development Minister Shane Jones has defended his regional growth program after a long-delayed annual report showed more than half of the $257 million loan book held by the Government entity formerly known as the Provincial Growth Fund is considered to be at risk of impairment or default.
The surge in at-risk loan advances made by Crown Regional Holdings (CRH) – a vehicle used by the Government to warehouse policies intended to promote provincial growth or regional infrastructure – were laid bare in its long-delayed annual report tabled to Parliament late last week.
Jones said the worsening credit risk was a symptom of a wider malaise.
“New Zealand is going through a tough time economically – extreme weather events, a post-Covid business environment, global geopolitical impacts. Businesses supported by CRH are no more protected from these factors than any other business," he said.
The report, to June 2024, shows the proportion of loans advanced that were considered to be at a “significant increase in risk” of impairment or default reached 54% of the total book at balance date – up from 40% a year earlier.
In 2022 this figure was just 14%. Over the three-year period the net loan book grew from $173m to $256m - from fresh Government funding pools for weather resilience, tourism and regional infrastructure projects - despite having to book substantial provisions for impairment.
CRH impaired $19.3m in loans in 2024, after impairing $17.4m the year prior. These provisions represented around 7% of the loan book.
CRH chair John Rae noted the increasing proportion of at-risk loans in his foreword to the report.
“While this increase continues the trend from the previous reporting period, it is not unexpected when factoring the challenging macroeconomic environment,” Rae said.
“It is also important to remind ourselves that the space that the funds are almost universally targeted is into areas that banks and other financiers are either unwilling, or on a very limited basis, prepared to support – which makes our investments inherently more subject to risk.”
This sentiment was echoed by Jones: “It is also important to note that many of the projects being supported are those for whom other financial support from banks and other institutions is extremely limited. The risk is always going to be higher.”
CRH’s single largest exposure is the expansion and development of Ōpōtiki Harbour, where $110m has been spent to date.
While loans make up the bulk of CRH outgoings, it has also made equity investments in regional businesses – such as the $52m tipped into loss-making Whakatōhea Mussels Ōpōtiki.
Revaluation of CRH’s equity portfolio wasn’t all one-way in the 2024 financial year.
The 2023 report had impaired a $7m equity investment into lithium and silica extraction startup Geo40 after its main plant suspended production and there were “material indicators of uncertainty in the going concern of the entity”.
By 2024, however, Geo40 had resumed production and a secondary market share sale had allowed CRH to revalue its equity stake to $6.2m. Geo40 is also the recipient of $10m in loans from CRH.
The release of CRH’s 2024 annual report was held up for nearly a year over how to assess its loan and investment portfolio. Audit NZ said it needed to “ensure that the risks associated with these complexities are addressed appropriately”.
At the end of May, CRH said it was expecting the report to be published in “mid-June”.
In early July, the Ministry of Business, Innovation and Employment said the report would soon be tabled to Parliament, which finally happened on July 10.
The Audit Note attached to the 2024 report is identical to that filed the previous year, including an emphasis on matters regarding uncertainty in estimating the value of loans and securities and how discount rates and expected credit losses are determined.
The next report is likely to see more write-downs, with CRH flagging a further three loan recipients have entered liquidation since balance date.
In November 2023, CRH approved a loan of up to $5m for Hawke’s Bay cherry producer Cherri Global to help the company recover after Cyclone Gabrielle. Less than 18 months later Cherri collapsed into liquidation.
The first report by liquidators PwC showed CRH is among unsecured creditors owed $42m by the Cherri group.
Ashburton-headquartered plant-based food manufacturer Sustainable Foods had been advanced $1.4m by CRH.
Sustainable Foods entered voluntary administration in August. Its proposal to restructure its debts was voted down at the watershed meeting in November and the company had liquidators from PwC appointed.
Despite a general security agreement, the liquidator’s second report said the CRH loan was likely to face an $895,616 shortfall.
Overall, Sustainable Foods is expected to leave all creditors more than $2.5m short.
Timber wholesaler Guru NZ was tipped into liquidation in February. CRH is listed as one of six unsecured creditors who are collectively owed $773,085.
Receivers were separately appointed to Guru in March by the China Construction Bank which sought repayment of $3.1m.
The first receivers’ report, prepared by McGrathNicol, said Guru owed a total of $14m to creditors and an estimated shortfall of $7.7m would mean unsecured creditors would be left with nothing.
Jones said he would continue to push out his funding packages.
“We are watching regional New Zealand being hollowed out and I’m not going to step away from providing support through legitimate funding sources. As long as applicants meet the eligibility criteria, they are entitled to apply for funding, much of which is through loans,” he said.
Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism – including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.