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.

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