Interest to cost city $9.5m a year

Interest on the $92.8 million the Dunedin City Council plans to borrow this year is set to cost the city $9.5 million a year for the next 20 years, and more is expected to be borrowed next year.

The loans - approved in this year's council annual plan - are required for the stadium, the Otago Settlers Museum redevelopment, the Dunedin Centre upgrade, and water, waste water and roading work.

A full meeting of the council today will vote on whether to approve using the capital value of Dunedin city as security for the loans, effectively meaning banks could place a claim on rates income if the city was unable to meet its repayments.

But council finance and corporate support general manager Athol Stephens said the local authority would have done that itself "way before the banks do" if the situation ever arose.

Mr Stephens has the job of finding the money, and said in a report to today's council meeting the risks of drawing down the loans could be "managed satisfactorily".

The lender would be Dunedin City Treasury Ltd.

Mr Stephens has recommended the council borrow the money in two lots: $45.8 million to be repaid over 20 years at 7.5%, and, for the stadium, $46.9 million at 9%, raised on an interest-only basis, and repaid when ownership of the stadium is transferred to a council-owned company.

He said the vote today was a "technical requirement" to authorise the security for the loan.

The stadium loan was at a higher rate than the rest because "that was the price we had to pay" when raising the money to pay for the stadium land in June, at a time there was already volatility in the market.

The $45.8 million had not yet been raised, but Mr Stephens said it could be borrowed at the lower rate of 7.5%, though in the report he said the interest for the two loans "may well have changed by drawdown date".

The transactions would come within the council-set liability management policy, which stated gross interest expense should not exceed 20% of total rates revenues, and should not be greater than 8% of total operating revenues. Those percentages were 14.4% and 6.4% respectively at present.

 

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