Loans for dividends will continue

Bevan Dodds
Bevan Dodds
Dunedin City Holdings Ltd will still have to borrow money to fund reduced dividend payments to the Dunedin City Council.

DCHL chief executive  yesterday confirmed loans would continue to help fund some of the $18.2 million annual dividend expected to be paid to the council each year, beginning in 2012-13.

The exact amount would depend on the performance of DCHL and its subsidiary companies in the years to come, he said.

"How much will need to be borrowed we can't say," he said.

His comments came after Dunedin Mayor Dave Cull last month said DCHL was in an unsustainable position after borrowing to maintain its dividend payments to the council in the past.

DCHL's annual dividend payments to the council would have to reduce, beginning in 2012-13, from $23.2 million to $18.2 million, while $3 million going to Dunedin Venues Management Ltd would cease, he said.

That prompted Cr Lee Vandervis to yesterday claim even the reduced dividend payment of $18.2 million to the council was unaffordable, as DCHL would continue to borrow up to half of the money. That was because the reduced dividend payment agreed by the parties was still about "double" the DCHL's after-tax profit, he claimed.

The shortfall in DCHL dividends to the council and DVML, totalling $8 million, was more likely to be $13 million each year if loans were not used to fund them, he argued.

"They can deliver the dividend by borrowing, but they can't actually make the money."

However, DCHL's last annual report showed the group made a net profit for the year of $18.1 million in 2010.

And, asked to respond, Mr Dodds said dividend payments came from the cashflows of individual companies in the group, not the "accounting profit" listed in DCHL's annual reports.

Mr Dodds said loans also weren't taken specifically to pay dividends to the council, but were used to fund certain company activities and "it's more like it [the loans] come out in the wash".

Payments were made by the companies to DCHL, and then passed on by DCHL to the council, he said.

The reduced dividend agreed was "acceptable" to the DCHL board and the borrowing required to help fund it was "something the companies could withstand", he said.

"That's based on a view of the businesses where they are right now," he said.

chris.morris@odt.co.nz

 

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