DCC now security for stadium loans

Cr Syd Brown
Cr Syd Brown
The Dunedin City Council, and ultimately the city's ratepayers, are now the security for about $150 million in loans needed to pay for the Forsyth Barr Stadium.

However, a claim by Cr Lee Vandervis the move has also granted a $20 million contingency fund to spend on other undisclosed stadium extras has been rejected.

Councillors at this week's full council meeting voted 11-4 to approve changes to the constitutions of Dunedin Venues Ltd and Dunedin Venues Management Ltd, the council-owned companies charged with owning and operating the stadium.

The changes - opposed by Crs Vandervis, Paul Hudson, Jinty MacTavish and Teresa Stevenson - allowed the companies to issue uncalled shares to the council worth $170 million, to be called in only if needed.

Cr Richard Thomson, deputy chairman of the council's finance, strategy and development committee, said the move did not mean money would change hands. Instead, it allowed the council - and ultimately the ratepayers - to act as security for the two companies' stadium-related loans.

The loans were sourced by Dunedin City Treasury Ltd and then on-loaned to the companies, but DCT needed security to obtain the funds from its sources, Cr Thomson said.

"Otherwise they wouldn't lend it to them." However, the uncalled capital approved by the council provided access to about $20 million more than the $150,459,000 in stadium-related debt to be held by the two companies.

That included $105 million in stadium construction debt and other costs associated with the stadium.

The gap prompted Cr Vandervis to claim at Monday's meeting the extra $20 million was an "unspecified contingency" fund for stadium extras.

Councillors had also voted at Monday's meeting to defer $6.3 million worth of stadium maintenance spending for five years, yet still cover the money as part of the $170 million uncalled capital arrangement, he said.

Speaking yesterday, Cr Vandervis said the whole arrangement was "bizarre".

"There is obviously room for extra spending, starting with the $20 million contingency and then going on to the ... maintenance fund.

They've said they're going to defer it ... but it's actually added into this amount." Finance, strategy and development committee chairman Cr Syd Brown could not be reached for comment yesterday, but at Monday's meeting he labelled Cr Vandervis' comments "quite mischievous".

"This is a security arrangement only with the Dunedin City Treasury. It's not awarding any capital to the [companies]."

Cr Thomson said yesterday the contingency built into the arrangement was simply a business practice that made "perfect sense", and the money was not earmarked for anything.

It meant there would be no need to repeat the same legal process in future "if there were some reason, further down the track, why the stadium might wish to borrow some money", he said.

However, the companies would still be prevented by their statements of intent from borrowing large sums without prior council approval, he said.

The measures approved on Monday meant the companies' directors needed to be unanimous before requesting extra capital, and give 90 days' notice to allow the council time to make arrangements or consider alternatives, a report by council finance and corporate support general manager Athol Stephens said.

Cr Thomson said the arrangements could see a request for some of the uncalled capital sometime in the future - for example, if the stadium ran a continuing operating loss and needed extra capital to cover loan costs.

If that happened, "I imagine [the council] would have to borrow it", he said.

However, the situation would be no different if the council owned the stadium itself, rather than through a company structure, he said.

"You could say that exposes the council to risk, and the answer is 'yes it does', but it doesn't expose them to any more risk than if they owned the stadium.

"You'd still have to find that money."

Cr Thomson said he hoped that scenario was unlikely, but the answer would only come in several years when the stadium's "novelty value" wore off.

"The risk for the council has always been that the stadium won't make sufficient money to cover its expenses, and in that situation the risk is no greater now than it was yesterday."

- chris.morris@odt.co.nz

 

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