Aucklanders will get a say on whether their council should sell its $2b airport asset, but no expert analysis has been done on the merits of flicking or holding the stake
Auckland Mayor Wayne Brown's false speculation about his council's biggest public asset caused a short-term sharemarket alarm, but also drew closer attention to his arguments for selling its $2 billion holding.
His 'guessing' from the chair during a full council meeting considering the sale of the 18 percent share of Auckland Airport that the company was about to launch a capital raise to fund its big terminal expansion saw a rapid trading halt called on the NZX.
"Our 18 percent will soon become 11 or 10. They are about to go to a major raising to fund a new domestic terminal," he said.
As he continued chairing the debate, the NZX regulator declared a halt to the airport's share trading, the company issued a statement denying any such raise or plans and Brown himself backtracked, claiming he had been simply "assuming or guessing" a capital raise was on the cards.
Brown claimed to have done no more than made an assumption, and the shares returned to trading after an hour, but his public musings as the head of the biggest shareholder in the airport carried weight and implications beyond his informal explanations.
The mayor wants to sell the shares, valued somewhere around $2 billion, and use that money to pay off part of the council's $12 billion debt, which would save around $88m a year in interest costs. Council officials and Brown argue the airport company won't pay the council anywhere near that annual amount in dividends, so the shareholding is effectively costing the council many millions a year.
But there was a reason he publicly raised the prospect of the airport company seeking more capital from shareholders and the market.
Brown's argument was that because the council couldn't afford to participate in any such capital raising offer, its shareholding would fall, from the current 18 percent to what he had calculated would be between 10 and 11 percent.
How he came up with those numbers is unclear, but that specificity may well have appeared to the NZX regulators that he knew of a specific value of funds and shares being raised.
He used the council's lower percentage shareholding to bolster his argument in favour of selling: "At that point, it [share ownership] becomes less and less strategic."
But with the airport company rapidly denying any such capital raising, and therefore dilution of the council holding, that argument faded instantly.
And in the hours of discussion over the 2023/24 council budget that followed, it wasn't at all certain that councillors will endorse Brown's airport share sale after the public has been consulted from February.
Even those seen to support Brown since his election in October were among voices of doubt over the sale.
Mike Lee, a two-term Auckland councillor returned to the role at the election, argued that the airport shares had been gifted to the council in its past life, and no debt had been incurred in accumulating the shareholding. He questioned the attempt to paint the share asset as actually costing the council money each year. Other borrowing had led to the debt costs, not the airport.
Lee said in 2019, pre-Covid, the airport paid a $59 million dividend to the council, and councillors should bank on both the airport and Ports of Auckland eventually becoming income-earning assets again.
Brown said there was no expectation, however, that the "dividend would come anywhere near the cost of the debt". He meant the $88m a year that could be saved if the whole shareholding was sold and $2 billion was cut from the debt total.
Councillor John Watson, another promoted by Brown to a committee chair after the election, wanted an expert view on the airport share sale. "It would be nice to get an investment perspective on this asset as opposed to just selling off an income-earning asset, such as it is to plug a deficit."
Another councillor, Christine Fletcher, who praised Brown's clarity and leadership of the budget process, was also "not quite persuaded on the airport shares, and would welcome proper analysis in the new year".
Officers at the meeting told councillor Chris Darby the sale proposal in the mayor's budget had not been subjected to independent investment analysis, but the council finance team had relied on open source analysis from market analysts. Darby said there had been no analysis of the strategic benefits of holding the shares, despite him suggesting it early in the budget round.
He succeeded in having an option of the council reducing its holding to a 10 percent 'blocking stake' in the airport company included in materials to be circulated as part of the public consultation.
The council chief financial officer, Peter Gudsell, said: "The staff came to the conclusion that there are no strategic objectives and it appears to be simply a financial investment."
Councillor Daniel Newman saw little merit in holding the airport shares. "No one has explained to me what the strategy is. We don't participate in capital raising and to me that doesn't indicate we are an active strategic partner.
"We simply take dividends when they are available. It feels to me like we are akin to a Canadian pension fund. The airport isn't going anywhere. It is a commercial property company. If you think you can add value to a commercial property company then go buy shares yourself."
Deputy Mayor Desley Simpson gave wholehearted backing to Brown's proposal, saying even if the airport company started paying dividends of up to the $60m range mentioned by Mike Lee, the shareholding would still not be a net benefit. Simpson also claimed "these shares cost us about $90m a year", citing what is, at best, a figure for opportunity cost.
Late in the budget meeting, as councillors considered the mayor's proposed letters of expectation to its council-controlled businesses, they were shown a future debt chart for Auckland Council. It showed a big majority of current debt and debt for the next four years was fixed. But after that, and if debt was increased, it would be at more expensive, fixed rates.
Brown used that to push again on the airport share sale. "If you sell the airport shares, it is the expensive debt that you are saving, not the cheap debt."
The mayor and 19 councillors voted to approve the proposed budget to go out to public consultation. Only councillor Josephine Bartley, who believed the measures inequitably targeted savings from community groups and that councillors were already mandated by their voters to make decisions, opposed this budget being put to the public.
