No borrowing to pay dividend, DCHL says

Dunedin city councillors have again been reassured the days of Dunedin City Holdings Ltd companies borrowing to help fund dividend payments to the council are over.

Questions about future borrowing were raised when councillors considered updated statements of intent for DCHL and its subsidiaries at this week's full council meeting.

Councillor Richard Thomson queried DCHL's statement, which forecast an annual dividend from it to the council of $4.29 million for the next three years. That was part of overall cash payments totalling $15.7 million each year, including interest and subvention payments, from DCHL and its subsidiaries to the council in the years to 2015-16.

However, Cr Thomson wondered how DCHL could meet its dividend payments without borrowing, when its overall operating surplus for each of the next three years was below the expected dividend payments for the same period.

Projected surpluses were all below the $4.29 million dividend projected, at $4.188 million in 2013-14, $1.578 million in 2014-15 and $2.310 million in 2015-16.

At the same time, it appeared the holding company's shareholders funds were expected to decrease by a ''suspiciously'' similar amount to the gap between the two other figures, Cr Thomson observed.

Those funds were forecast to drop from $13.140 million in 2013-14 to $8.518 million in 2015-16.

Cr Thomson said councillors were assured by DCHL it would no longer borrow to help fund dividends to the council.

The figures prompted him to question whether DCHL's subsidiaries could borrow internally to enable them to boost dividends to the required level.

DCHL director Graham Crombie said that would be an ''interesting'' strategy, but not one the companies were pursuing, while DCHL chief executive Bevan Dodds went further.

Mr Dodds said the ''year to concentrate on'' was 2013-14, where the difference between projected surpluses ($4.188 million) and dividend payments ($4.29 million) was ''very close''.

He was confident that small gap could be bridged by the end of the financial year on June 30, although it would still be close.

Projections for later years still contained ''a lack of clarity'' and needed more work, and were ''reasonably conservative'' at this stage, he said.

He expected dividends from ''at least two'' of the holding company's subsidiaries would increase in the meantime, and the projected numbers for later years would change ''quite significantly'' when more detailed budgets were completed.

Cr Lee Vandervis welcomed the fresh assurance but wondered if that left the door open to asset sales, including the sale of some of the subsidiary companies, to bridge the projected gap.

''Is this an alternative for meeting a dividend not out of profit . . . and not out of borrowing?

Mr Crombie said the answer was no, as ''that's not what flows through these numbers''.

Any decision to sell assets would be a ''totally different piece of policy'', he said.

The review of DCHL by Warren Larsen, completed in 2011 following a shortfall in DCHL dividend payments to the council, had suggested asset sales might be needed to address rising council debt levels.

DCHL had also launched a review of its company assets last year, results of which were yet to be made public.

Debt For dividends

Our DCC councillors can rest assured that DCHL will be borrowing to pay the dividends to finance their wasteful operating expenses and their excessive capital expenditure. They expect the impossible from DCHL; they expect to be paid more than what DCHL earns every year. The DCC councillors are forcing DCHL to borrow to pay their dividends.
The words from Dave Cull, Syd Brown, Bevan Dodds and others have been very clear that, from now on, they will not borrow to pay dividends. Even clearer than these words are the figures in the DCHL financial forecasts (Statement Of Intent) which show that they will be borrowing to pay their dividends for the next three years, at least.
I have no confidence in the statements of the CEO or Mr Crombie and I suspect that the more alert DCC councillors think the same. [Abridged]


Smoke & Mirrors

@Max_Power: We are paying more because of the stadium. We are paying more because the DCC is raising various charges - refer recent rise in refuse tip charges - which hides the true cost of the stadium on the city.

The library may still be buying books but the book buying budget has been systematically reduced over the last few years and in this next round will be reduced again, this time by much more .

And despite Dave Cull saying that services won't be reduced we are already seeing a reduction via the back door, as above.

Meanwhile the waste and water infrastrucrure is in need of a major overhaul - previously reported in the ODT - but this is being deferred because of the stadium debt.

I for one am not prepared to believe anything Dave Cull or the pro stadium cohort of councillors 'forecast' re rates.


DVL forecasts

MikeStk: Darren Burden has, just last week issued the new financial forecasts for DVL for the next three years. These are contained in the Statement Of Intent (SOI) which are released every year for all of the DCC owned companies.

DVL forecasts that it will make a loss for this year and the next three years. Last year DVL made a $12 million loss, with a further loss of $8½ million from interest rate swaps. I suggest that the interest rate swaps loss should not be counted. This year, the forecasts for the net losses are withheld and only the losses after the ratepayer subsidy are given. After the large ratepayer subsidy, about another $5 million per year will need to be paid from rates and by increasing DCHL debt.

Probably DVL's losses will continue to be about $12 million per year.
This $12 million for DVL doesn't include DVML losses and some some very significant other costs to the DCC. The total ratepayer impact has not been disclosed by the DCC. [Abridged]

Rates rises

Hype.O.Thermia: I'm struggling to understand how your comment relates to what I said. Rates rises are the lowest they have been in many years in Dunedin. Next year will be 4%, while many other southern councils are facing upwards of 10%. So the argument that the stadium is  pushing rates up doesn't seem to be valid. If anything, it seems to have done the opposite.

Where your money goes

Max: Look closely at your next rates bill. There's 3 parts - there's a fixed services part and there's a section based on the value of your property. Added together you get the rates as levied by the council - that part may go up by 4% next year (still above inflation).

Then there's a third part - the rates rebate. It decreases the amount you have to pay. It's essentially dividends from the council-owned companies passed out to you - it's income on investments made by our grandparents, if only we had the same forethought.

But the stadium debt is largely being funded by subvention payments from the same council companies that fund that rebate. They've actually been borrowing more  money to keep your dividends high, as we were told this week that has stopped,. We've also been starving them of development capital, to keep them viable we're going to start investing in their future again, stop bleeding them dry - that's why the rebate has gotten smaller and will continue to get smaller for quite a while.

While the rates have only increased a bit because the rebate is decreasing at the same time the actual amount of money you are paying and will continue to pay to indirectly fund the stadium will continue to be far far larger than the $66 Mr Farry promised us.

Max, meet Hekia

She's had some bad press but here she is clearly on the right track:  "Education Minister Hekia Parata is considering a return to basic arithmetic for primary school children in an attempt to lift New Zealand's faltering performance in maths."  

Max_Power: "I'm struggling to see how ratepayers are paying more as a result of the stadium. If anything the rates rise has been less now that the stadium has been built."

White Elephant

Are you blind, Max. Take a drive down Awatea Street. It's quite plain to see.


I'm struggling to see how ratepayers are paying more as a result of the stadium. If anything the rates rise has been less now that the stadium has been built. This year it was 4%, next year they are forecasting 2-3%. Road are still getting sealed, rubbish is being collected, tickets being written, library books are still being purchased. The sky hasn't fallen and yes, grass will grow under the roof.

No, it's objective.

I'm afraid that while a number people will like a number of the events (not all the same for both), they will all eventually hate the costs. It is the hip pocket nerve, and how it affects people, that will ultimately win. We see this in national elections where votes gained are usually based on bread and butter issues, not 'moral high ground' issues.

What is a white elephant?

...Max_Power asks.  "Historically, the term "white elephant" comes from a practice of emperors giving sacred white elephants to aristocrats they did not like. The aristocrats could not kill, give away, or sell the sacred white elephant which meant that they had to feed and care for it for many, many years. After a rich man had a few white elephants, he was no longer rich, so the emperor was one up on the aristocrat and had effectively put the aristocrat in his place." (
Thus one can readily see what an apt description of the stadium it is: it appears to add status or value to Dunedin, but by losing money steadily on top of the cost of servicing the loans taken out to build it, it steadily year by year drives the city deeper into debt, no matter how many (subsidised, incentivised, non-profit-returning) events are held in it.

It's objective

Ever seen a city council teetering on insolvency, pulled to destruction by a pet pachyderm with Dave on its back, dancing in a white tutu (condor-like) - in this darkest of election years? Suppose not.

It's subjective

In conclusion some people measure success based on whether the stadium is a viable and some people base it on whether it is a well utilised facility. Each group is entitled to feel how they want about it, and chances are neither of the opposing groups are ever going to convince the other that they are more right. I suspect the majority of people are somewhere in the middle - they hate the cost but they love the events.....

The list goes on

Max: if the events lose money ,then if the "list goes on" then the losses go on building and building - with the ratepayers stuck holding the bill at the end. Remember, DVML's Mr Burden can't even tell us if the upcoming concerts will make or lose money.

On the other hand, if the stadium is a "rugby stadium" as the DCC's own report into its finances claims and rugby just loses and loses no long list is going to make up the difference. Llet's worry about rugby making a profit and then the little stuff can take care of itself. 


Don't confuse 'busyness' in an events schedule with a 'viable business'. Please read - DVML, DCHL and DCC annual reports and projections therein. You might also like to refer to the publicised need to review DVML's business model, likely incorporating company restructuring to turn the lumbering beast around and out of the red (not white, or black).

White elephant?

Please explain - how the stadium is a white elephant? This year there are multiple concerts (Macklemore, Winery Tour, Paul Simon, Aerosmith), plus rugby, Warriors, league, Phoenix, All Whites, markets... the list goes on. 

Asset sale of FBS

How about selling that white elephant FBS to the rugby union, sky TV and other parties making a profit from it.

Totally the wrong slant, surely?

You claim at the beginning of this article that the councillors are reassured. Are you sure? Even from what you report I would have said that while Graham Crombie had attempted to assure them the profits would cover the subvention payments, even he pointed out that in the very best year, the difference between the projected income and the payment to DCC was hoped to be achieved by a better performance than projected. How can this reassure all the councillors? I certainly hope it did not!

It may have reassured some of those wh were fast asleep - but how could you allow this to be headlined as reassurance? Wouldn't you have been better to headline this as "projected income falls short of subventions but Crombie hopes DCHL will do better than projected and thereby avoid having to borrow to meet them"?

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