Bruce Bisset: Panicking over a bit of debt

Bruce Bisset

When you analyse the proposal to sell Hawke's Bay's port, the only good reason to do so is to avoid taking on more debt. Because everything else – including regional environmental programmes – is taken care of regardless.

So a decision comes down to two questions: is more debt a bad thing and, if it is, are there other ways to avoid it?

The answers, as far as I can determine, are No and Yes respectively. Either way, you can have more cake without needing to eat it.

First, it's not about having more cash for the environment; HBRC is already borrowing $70m to fund what it calls "critical" environmental initiatives – in addition to the 20 per cent hike in rates for same this year.

Second, the Port company – owned by us via the HBRC's investment arm, HBRIC – has borrowed some $86.6m in the past few years to buy two cranes and build itself new offices.

Now the port plans to expand by spending another $350m before 2028: $142m for a new addition to the container wharf, plus $139m in (unspecified) upgrades and $38m in (unspecified) "new assets".

The port says it can self-fund ALL of that cost – provided it doesn't have any existing debt (the $86.6m).

Clearly, it's a healthy, profitable business; so healthy it pays over $10m per year dividend to its owners, which helps offset our rates – and still would.

Why, then, does it need additional help? Apparently because to carry all the combined debt would be "imprudent".

That's what HBRC also says in wanting to sell instead of taking on the port's existing debt. This "would be a sub-investment grade asset with "intermediate" risk", they opine.

So what? Unless they're looking to sell, what "grade" the investment is is irrelevant, as is the risk; after all, the "investors" are us, the ratepayers, and in the unlikely event it went bottoms-up it would be us, the ratepayers, who would have to rescue it.

In reality that's no different from the situation as it stands. And if the port is such good business, I suggest the risk for ratepayers is minimal.

Besides, it's not at all unusual for large companies to be "geared" at rates of 100 per cent or more for their debt-to-equity ratio.

Whereas HBRC could take on this debt and still be below its target debt-to-equity guideline of 28 per cent. So much for "imprudence".

Note that being publicly-owned the port has the advantage of being able to borrow through the local government funding agency at the piffling rate of 3.6 per cent.

Making the repayments on an $86.6m loan almost exactly the same as the current dividend the port pays the council.

So, worst case scenario: the council loses the dividend and regional rates go up around 20 per cent - about $90 per year per ratepayer. Is that really such a burden we must sell the port?

Besides, there are other funding methods: business bonds, for example; surely all the firms reliant on shipping would purchase enough bonds to at least significantly reduce debt.

For that matter, put charges up! It costs $1200 extra to send a container to another port for export; and at 290,000 containers per year (2018), just $35 per container would cover it – at no cost to ratepayers.

Please be very clear: this proposal to sell the port is NOT about building a new wharf. It's about how best to service existing debt.

For the reasons above, and many more including Paul Bailey's "Option E" suggestion, selling the cash cow that could easily service that debt is patently ridiculous.

You have until November 15 to tell the council so.

* Bruce Bisset is a freelance writer and poet. Views expressed are the writer's opinion and not the newspaper's