A Tale of Two Ports

Port of Tauranga has cracked the $100M net profit mark for the first time, underlining how efficient it has become as NZ’s largest port. The NZX-listed Mount Maunganui-based company also reported this week its long-term credit rating had been elevated from ‘BBB+’ to ‘A-‘ by credit rating agency Standard & Poors. The short-term rating was affirmed at ‘A-2’.

PoT’s market capitalisation hit $4.3bn in the wake of its latest result, a huge leap from the $78m at the time of its IPO in 1992. The company has provided a river of gold for the Bay of Plenty Regional Council, which retains 56% of the shares.

So why have other local bodies, which own ports, been so slow to follow the example of the BOP Council in partially privatising their port businesses and reaping the rewards?

As a public company Port of Tauranga Ltd moved from being a non-taxable, non-profit organisation, to one subject to income tax, committed to paying a dividend to shareholders and subject to the normal business and commercial opportunities and constraints faced by any public company.

Port of Tauranga’s performance under the stewardship of high quality chief executives has been outstanding, moving up to be world class. There has been a massive increase in port productivity, with total cargo throughput soaring from 6,114,000 tonnes to 22,194,000 tonnes over the past 26 years, container volume from 40,134 to 1,085,987 TEUs (20-foot equivalent units) and ship departures from 683 to 1653 a year.

Funding pressures on the local government structures in several provinces are so severe as outdated infrastructure calls for fresh investment that partial privatisation of assets like ports should be a no-brainer.

Yet only the Hawke’s Bay Regional Council has followed the example of the BOP Council in designing an IPO of its holding in the Napier Port, as it did this month.

And what a success it has proven to be.

At the end of the 2018 financial year, Napier Port was valued at $291m in the Hawke’s Bay council’s books. In selling a 45% stake, the council found, at the end of the first day’s trading on the NZX, its remaining 55% holding   was valued around $330m.

It begs the question: why aren’t other regional authorities challenging their commercial operations in the same way and listing them on the NZX?

As investor relations consultant Jonathan Hill pointed out in the Dominion-Post, the main rationale for the Napier Port IPO was to provide the funding that the port needs to invest in its future – primarily a new wharf at a cost of up to $190m. In inviting private capital to partner in the port, the regional council was able to provide $110m to Napier Port. It protected ratepayers from having to foot that bill and realised additional proceeds of over $100m to invest on behalf of Hawke’s Bay residents.

It has diversified what was an overly concentrated exposure on Napier Port for income and sensibly reduced its investment and asset risk profile.

So Napier Port has the funds it needs to begin to invest in its future. It still has a majority council shareholder representing ratepayers, plus locals, iwi and investment institutions all owning shares. The regional council also retains a healthy level of commercial exposure to the port’s financial performance”

Hawke’s Bay is far from unique. Many of the issues it faces, and which gave rise to the Napier Port IPO, are almost universal across local government: strategic assets requiring intergenerational investment, a lack of appetite from ratepayers to pay for it, a desire from locals to retain control of regional assets and for local authorities to stay within set debt parameters.

Just like Hawke’s Bay, councils now also face the challenges posed by climate change on their infrastructure, lands and assets. There is a bow wave of required major infrastructure investment just around the corner – funding pressures on local government are storm clouds on the horizon.

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