Will Bay of Plenty residents be first in for possible Port of Tauranga share sale?

The sharemarket predicts a solid appetite for Port of Tauranga shares in the proposed sell-down by the Bay of Plenty Regional Council. Photo / Alex Cairns

Whether Bay of Plenty ratepayers will get first or special dibs in a proposed sell-down of shares in their council’s stake in NZX-listed Port of Tauranga could be decided in the next few weeks.

The Bay of Plenty Regional Council has given a provisional green light to selling its 54.1% stake in New Zealand’s biggest port down to 28%, and is now scheduling workshops up to the end of October to discuss how and when the divestment might happen.

In this process, the council is working with its wholly-owned investment fund Quayside, which has appointed a partnership of Cameron Partners and Rothschild to advise on divestment options.

The council in June adopted a long-term plan for 2024-2034 which enables the managed sell-down of the shares.

But as Quayside chief executive Lyndon Settle puts it, the council still has “guard rails” that need working through to see if and how Quayside is empowered to conduct the transaction.

Asked if there could be a special provision for local ratepayers and residents to buy the shares in any market offer, Settle said “many different scenarios” would be discussed at the workshops, some of which Quayside would be involved with.

Quayside general counsel Suzanne Casey told the Herald work by the Cameron Partners-Rothschild advisers was under way, but because the council had yet to confirm the parameters of any sale, Quayside couldn’t offer a timeline for the process.

The proposed share divestment follows a Quayside review last year of its operation which concluded having 80% or $2.1 billion of the total value of its commercial assets tied up in port shares was not best practice for an intergenerational investment fund.

Such a high concentration to a single asset added significant risk into the investment portfolio, which needed diversification, Quayside advised the council.

A Cameron Partners report called the size of the port investment in the context of Quayside’s total investments “imprudent”. Also, a PwC report last year noted the council was facing economic headwinds, needing to grow infrastructure and services to support the fast-expanding region and with increased climate risk and escalating costs.

It faced an operating budget deficit and had been placed on “negative outlook” by credit rating agency S&P due to its operating deficit and high debt burden. The council consulted the local public on the port share proposal.

Selling part of its Port of Tauranga stake could help Bay of Plenty Regional Council meet economic headwinds in the fast-growing region. Photo / Alex Cairns

Casey said Quayside’s full team for the proposed sell-down project was still being developed.

“This will comprise staff and directors with the most relevant expertise and capability. Externally, we have recently engaged legal and communications advisers [Minter Ellison and Shanahan Group, respectively] who will form part of the project team, together with our investment adviser,” Casey said.

“We don’t have any clarity on the timeline as we await parameters from council. We will take our time to ensure that we can deliver the best outcomes from any transaction. Timing may depend on the parameters set by council, the method and process of transacting, market conditions or any other variables.”

Market sensitivities also meant Quayside would not be able to disclose exact timelines for any divestment of the shares, she said.

One sharemarket analyst and local resident watching the proposed sell-down process closely is Craigs Investment Partners’ Mohandeep Singh.

As a local, he believes the sell-down is “sensible”, giving Quayside the option to invest in other projects in the fast-growing region. He thinks there will be a good appetite for the shares.

“In recent weeks interest in listed assets such as [takeover targets] the Warehouse and Arvida in New Zealand has reminded the market of the latent value in some of our listed shares. Putting aside the current [market] volatility, interest rates coming down helps take the pressure off consumers, which has been quite restrictive.

“Interest in defensive infrastructure that is difficult to replicate never goes away.”

Meanwhile, the prospect of the Quayside divestment will add to market interest in the Port of Tauranga’s 2024 financial year result on August 23.

The upcoming council/Quayside discussions may also consider whether any sell-down should be done all at once or in stages.

Quayside, set up in 1991 to manage the council’s shareholding in Port of Tauranga, has commercial assets valued at a total of $2.5b as at December last year.

Aside from the $2.1b investment as 54.1% owner of New Zealand’s main export port, Quayside’s portfolio of assets is made up of 7.2% or $187 million of shares; 7.4% or $192m of property; 4.9% or $127m of private equity; and 0.9% or $25m of cash and bonds.

Its 2023 strategy review concluded Quayside’s earnings remained uncertain, with volatility impact and dividend expectation forecast to be below net operating cashflow.

“There is a risk that this does not satisfy the principle of perpetually growing the fund in real terms for the benefit of future generations,” a report said.

Included in its total investment portfolio, Quayside has “strategic” investments of $87.6m.

These comprised an $85.5m investment in industrial land development in stage one of the Rangiuru Business Park, and $1.8m in retention of land at Tauriko for “future strategic benefit” on behalf of the council.

The idea of selling down the port shareholding was raised in 2020 by the council’s financial advisers, who suggested lowering the stake to 51%. But the council directed no work should proceed because partial divestment would require substantial investigation, a full business case and community consultation.

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.