Any Government bail-out of financially stricken Solid
Energy could cost far more than the $389 million of debt
identified by Minister for State Owned Enterprises Tony Ryall.
State-owned enterprise Solid Energy's imminent half-year
report should give a clearer indication of the full extent of
its debt, other liabilities and actual asset values, the
latter likely to have plunged in value. Solid Energy last
week flagged the imminent half-year result would include
further ''significant losses'', after last year's full-year
$40 million loss.
Following last Thursday's shock announcement banks had sought
government assurances over repayment of Solid Energy's
billowing debts, its future hangs in the balance pending a
likely taxpayer-funded bail-out.
During the previous financial year, Solid Energy's total
liabilities were driven up by increased borrowings, from $614
million to more than $743.5 million, its annual report to
June said. The $743.5 million includes cash provisions held,
term interest borrowings and accounts payable, industry
analysts have said.
At the time, its total assets were booked at $1.16 billion,
but analysts expect they have since been heavily written down
in value and are now further undermined by its teetering
The future of Solid Energy's recently completed $29 million
pilot lignite-to-briquette plant near Mataura appears to be
in jeopardy. Solid Energy chairman Mark Ford has said it is a
non-core asset Solid Energy is likely to be exiting.
The first restructuring round cost about 450 jobs last year,
and the remaining 1200 staff now face weeks of uncertainty as
the future of operations is scrutinised.
Solid Energy's debt issues are becoming a political football.
Green Party co-leader Dr Russel Norman launched into
National, saying the Government encouraged Solid Energy's
lignite expansion plans but never required it to submit a
business case for its ambitious but ''ultimately futile'' $2
billion lignite developments.
Prime Minister John Key said it was ''a bit fanciful'' to
suggest the Government should have sacked Solid Energy's
board in 2009, when the company was, arguably, performing
''On the face of it, at least what it had was rising profits.
It had a situation where its valuation was going up, it had
bankers lending it money, and it had an investment stream
that had been set in place by the previous Labour
Government,'' Mr Key told BusinessDay.
Finance Minister Bill English said the Government would not
let the company go into receivership.
A spokeswoman from his office said Mr English understood
Solid Energy had not breached its banking covenants
(exceeding agreed borrowing levels), and the question of
putting in statutory managers had not arisen.
In the collapse of South Canterbury Finance, which came
directly under the government guarantee scheme for investors,
government-appointed statutory managers were put in place.
That guarantee initially cost taxpayers $1.74 billion, but
some money was clawed back from later asset sales.
Mr Ryall said Solid Energy was facing ''very serious
financial challenges''. Its debt stood at $389 million and
its interim result ''will show additional losses''.
''The Government appreciates this is a very unsettling time
for employees and suppliers and the company's wider
stakeholders but it is a process which must be worked through
carefully and properly,'' the ministers said in a joint