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Delta undermines Dunedin's credit rating

Dunedin City Council’s problems with its subsidiary Delta Utilities may see its credit ratings fall further.

International ratings service Standard & Poor's yesterday revised its outlook on the council from stable to negative.

At the same time, the AA/A-1+ issuer credit ratings on Dunedin were affirmed.

The Ratings Powers Act means the credit of local authorities is unlikely to ever be seriously threatened, but the rating may affect the cost of borrowing.

The outlook on Dunedin City Treasury was also revised to negative, and the issuer credit ratings were affirmed at AA/A-1+.

“The negative outlook reflects our view that there is a one-in-three chance of a downgrade in the coming two years,” a statement by credit analyst Anthony Walker says.

“This is based on our view that Dunedin may not achieve its financial targets outlined in its long-term plan, with its after-capital account deficits not improving as quickly as forecast.

"If this scenario were to materialise, we consider that Dunedin would have limited budgetary flexibility to improve its financial position without deferring asset renewals, which may lead to future infrastructure backlogs.”

Further downward pressure could be placed on the ratings, depending on the auditor-general’s investigation into the management of Dunedin’s council-controlled trading organisation, Delta Utility Services, “which may weaken our assessment of Dunedin’s management of CCTOs... "

“The ratings could be revised to stable if the council’s budgetary performance strengthens as it forecasts, specifically if the council achieves after-capital account deficits of about 2% of consolidated operating revenues in 2014 and beyond, while maintaining its current budgetary flexibility and a stable political setting,” Mr Walker says.

Delta land purchases

Standard & Poor's was referring to mayor Dave Cull’s commissioning an auditor-general probe into Delta’s buying of land at Jack’s Point and Luggate.

The Delta case involves its acquisition in 2009 of 9.4ha at Jacks Point for $8.82 million and sections at Luggate for $5.3 million. A couple of months ago Delta reduced the value of the land in its financial statements by $7.5 million.

Delta’s purchase of 100 sections at Jack’s Point raised questions as to why a local government lines company would take an equity stake in a speculative development project, particularly in the immediate aftermath of the global financial crisis.

The sections were the last 100 of 350 that beleaguered Hanover Finance had contracted to buy but was unable to settle as it melted down.

The Delta acquisition follows its purchase in late 2008 for about $5 million of half of the Luggate development company then owned by Jim Boult, just before he secured his current chief executive position at Christchurch International Airport.

Delta had been installing services to these projects and appears to have invested in them in order to protect work for the future.

The directors read like a who’s who of the Dunedin businessmen’s network which has controlled many of the city’s major companies in recent years, particularly property ventures.

For example, at the time of the purchases Mike Coburn was a director of Dunedin City Holdings, Delta Utilities (where he still is on the board), Luggate Village Holdings and various other property companies related to Jack’s Point developer and friend John Darby.

Other directors include familiar Dunedin figures Ray Polson, Norman Evans, Stuart McLauchlan, Paul Hudson and Ross Liddell.

c.hutch@clear.net.nz

More by Chris Hutching

Comments and questions

I wonder if this won't also focus Delta directors and senior management to take some notice of the Commerce Commission's new regulations and penalties (civil and criminal!) for accountability of financial and network performance...

Councils should not operate companies.

This was all commented on at the time in NBR articles. It comes as absolutely no surprise.

DCC lost a court case this week after they illegally consented the realignment of SH88. That will be another few million gone.

It is long past time for Dunedin City Couincil to be dissolved and independent Commissioners appointed. their first job would be to ensure that those Directors responsible for the DCHL mess are properly investigated and charged.

Yes let's dissolve democratic processes for efficiency. That's how Mussolini got the trains to run on time. Who needs a vote anyway?

When democracy elects a majority of nincompoops onto the council time and again, and the council is easily captured by the local "Tartan Mafia", then, yes, you do have to look at a solution that involves independent commissioners. This is what happened for ECan and Kaipara.

There are huge financial problems facing the Dunedin City Council, but it's not all the current councillors fault. The biggest drain, which will hold Dunedin back for decades, is the ill-conceived stadium with it's massive operating costs, and attracting next to no users. Like many of the council's expenses, the blame lies with the previou council.

The majority of the Councillors sitting round the table are those that voted to build the stadium in the first place. Only the past Mayor who seemed to be asleep most of the time, a struck-off lawyer who thought the stadium would cost $66 a year per ratepayer to fund, and a person who really believed that he was the only one that understood anything were thrown out. Dunedin still has more than its fair share of geriatric or brain-dead people warming Councillor's seats. Until they go and the stadium doors are shut then Dunedin's fortunes have turned to misfortunes.

All interlinked, all safe from any prosecutions, no risk of accountability when the Council still comprises many of those that decided against the wishes of the ratepayers and all common sense, prudent and conservative management to build the wretched new rugby stadium which is at the heart of the City's debt. Dunedin is stuffed.

The financial situation with DCC's companies and councils are as interlinked as the directors.

Worse for Dunedin is that the holding company is there to pay a dividend to the council to keep rates low (hasn't worked for my house!) and on top of that is the large losses the stadium is having, even in it's honeymoon period.

Ironically, a private investor wants to build a hotel in the city and people are against it, largely because they mistakingly think the council is involved! Indeed, the council themselves recommended against it until wind tunnel testing" is done. This is a $100M private project that the city deperatley needs. Delta could do with the work!

The previous council bit off more than the City can chew:
Town Hall upgrade
Museum Re-development
Stadium
Highway Re-alignment

The debt is high and the population stagnent.

Delta is the least of the Dunedins worries, the council has to stop spending money. The city is broke due to the stadium and other out of control spending over the past decade. The DCC is and has been living far beyond it means for some time. The sooner the mugs at the council table face the facts and deal with the debt burden on the city the better.

A small revaluation of the land in Deltas books is not going to hide the $600m of debt the council has incurred. This is a massive amount of debt per person for a city of this size. The council should be replaced by a statutory manager, spending needs to stop and rates need to increase to pay off the debt.

The problem is the citizens do not want a cut in services and have had a guts full of much higher than inflation increases in rates and also increases in fees.
Delta's situation is a problem because the council was sucking money from it and other companies in order to keep spending and only increasing rates 5-8%p.a.
It isn't hard to find savings. Not spending over $60Kp.a. on climate change investigations that the university have already done would be a start.
The uni has also expanded over the past and while this isn't bad, I don't think they pay rates.
And don't get me started on the Otago Regional Council, that's another story.
Those of you out of the region must wonder what on earth is going on in Otago what with the bail out of rugby, building stadiums that are a luxury we can't afford....well, each region probably has their equivilant.
Councils need to get back to basics.
One bad thing about the Super City in Auckland was that it caused Rodney to be too busy to look at what was happening elsewhere.

Most of us are not directly affected by this

Indirectlty we are, because it shows how poor the decesion making is and how it effecively gets socialised ie everyone pays ( via rates ) and a few get benefits
No one is accountable and there is a 10 day noise then all is forgotten
Maybe someone loses a job ( but gets 2 years pay for stress and humiliation )
The biggest problem is that central and local government is such a big part of NZs economy The allocation of capital is so poor in this sector
NZ cant compete with growing economies because the investment of capital is not economically driven .Our central and local bureaucrats waste the scarcest resource in NZ ...capital we only have a liquid market because NZ government borrows $16 billion this year !

Watch interest rates rise as these credit ratings decline and margins grow

This problem is being socialised and we are all going to pay for it
Stop central and local governments from trying to be investors / fund managers !

Wait for Dunedin to be hit with earthquake strengthening costs... I don't think they have even considered this in the big picture...

Yet another example of the major conflicts of interest at the heart of Dunedin's commercial challenges. The problems have been evident for years, but any dissenting voice has been written off as "lefty looney" , "anti-progress" or worse. It's time for Dunedin's esteemed business community to stand up and take accountability for their decisions--- Stuart McLachlan, Mike Coburn, Etc etc etc. Why not listen to someone from outside the tight little circle? Take away these interlinked and conflicted businessmen and Dunedin has got so much going for it. (Although let's face it, Dunedin males usually make the news for all the wrong reasons.....)

What a load of narrow minded palava . You have no idea and you look to call yourself "I love Dunedin" We need these guys to move forward and be progressive, not sit back and winge like some retarded guinea pig - like yourself. There are worst situations , these people are driving the City forward , otherwise it dies and you might aswell go live in Milton. Forward thinking champ. Get with it , or shoot it boy.

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