Share slump forces Waikato council to raid capital

Environment Waikato is digging into capital to pay its way after suffering investment losses on plunging overseas share markets.

Finance manager Warren Stevens, in a report to the regional council's corporate services committee meeting, said that to fund normal operating expenses, council staff will this month withdraw $2m of the $83m working capital invested with the councils fund managers.

Slashed returns from plunging overseas sharemarkets have also drastically reduced income for another major Hamilton investor, Trust Waikato.

In Environment Waikato's case, across the board falls in share values on North American and other world stock market's have pushed returns for the year to March 31 into negative territory. In fact, after adjusting for inflation of 2.35 per cent, the council's income is $5.7m behind budget, Mr Stevens said.

The regional council invested the windfall capital it received from the sale of shares in the ports of Auckland and Tauranga on behalf of ratepayers.

Earlier this year $3.66m was withdrawn from the investment equalisation fund to cover part of the shortfall. As a result the council's income equalisation reserve (which sets aside some of the profits in good years to tide the council over years of poor returns) now has only $1.4m remaining to cover future reduced income. In January the fund's balance was $5.06m.

Total withdrawals for the year thus far total $5.5m and are 'in line' with staff budget predictions, Mr Stevens reports. Trust Waikato CEO Ken Gordon said falling overseas stock values have taken their toll on returns from the $215m his community trust has invested in a widely spread portfolio managed by five competing fund managers.

"We are only one of many investment funds to have suffered badly in the last 12 months," he said. The trust's income has slumped from the $16.9m, or 7.75 per cent, return in 2000 to $4.6m, or just over two per cent, in the year to March 31.

Despite the profit slump the trust plans to distribute $9.5m to community groups this year ($9m in 2000) and on top of that give $1.5m to the Hamilton city stadium upgrade project. "We are able to do this because an investment reserve built up by putting away some of the proceeds in good years," Mr Gordon explains.

Applications for Trust Waikato grants this year total $29.6, compared to $20m last year. By contrast to the investment setbacks encountered by Environment Waikato and Trust Waikato, Hamilton's other big grant making trust, WEL Energy Trust, received a 9.9 per cent return of $18m in the year to June 2000 from its 100 per cent ownership of power line company, WEL Networks Ltd.

- WAIKATO THIS WEEK