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Why a minority IPO of Napier Port strikes the right balance for Hawke’s Bay

Rex Graham01 June 2019

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As the Hawke’s Bay Regional Council considers a minority IPO in Napier Port, Chair Rex Graham, talks through the process and considerations.*

As I write this column, the Hawke’s Bay Regional Council is coming to the sharp end in terms of deciding whether or not to proceed with a minority initial public offer (IPO) of Napier Port. This decision is likely to be made soon, representing the culmination of nearly two-and-a-half years of rigorous and detailed work by councillors and Port and Regional Council staff. 

I’ve been a supporter in principle of a minority IPO in Napier Port and I’m looking forward to considering all of the information, including the final investment case, together with my fellow councillors in making this decision.

This is an important decision for Hawke’s Bay and as we have moved through this process, it’s been important to me that we keep in mind the objectives that have led to a minority share sale emerging as the Regional Council’s preferred option: 

• It would provide the funds that the Port needs to invest in its future, starting with a new wharf;

• It would protect ratepayers from the significant costs of funding Port development;

• It would retain majority ownership and control with the Regional Council;

• It would diversify and de-risk the Regional Council’s assets and income streams.

Additionally, it would allow the Regional Council to maintain a strong balance sheet to enable it to deal with the challenges that our region faces as a consequence of climate change. The impacts are already being felt in Hawke’s Bay and the Regional Council must be financially prepared.

As we approach this decision, these objectives have not changed. They remain the drivers for why we are advancing the detailed work for a minority IPO of Napier Port.

After two-and-a-half years of work, it’s worth recapping on how and why we have got to this point.

Napier Port is a strategic asset for Hawke’s Bay. It’s associated with approximately half of the region’s Gross Regional Product and is indirectly associated with around 27,000 local jobs. It is an important part of the Hawke’s Bay economy, directly connecting our region, our industry and our products to international markets.

In order to continue to service our region, our Port now needs to invest in its future, principally through the building of a new wharf and then through a programme of investment over the coming decade. The job of the Regional Council is to find the best way to provide the funds that the Port needs to enable it to do this.

In April, the Napier Port Board approved a detailed business case for the Port’s proposed new wharf. This approval is one of the key conditions set by the Regional Council that must be satisfied before any vote to approve a minority IPO. The Regional Council will consider the business case as part of the final approval process for any IPO. 

A new wharf is vital to the future of our Port and our region. It has reinforced my own view that doing nothing is not an option. 

We also cannot afford to cover the costs of the investment the Port needs ourselves, without placing unreasonable demands on ratepayers. I’m personally not prepared to do that.

We need external capital to help fund our wharf. I acknowledge that a minority IPO doesn’t please everybody, but nothing pleases everyone. If the information all stacks up and the Regional Council votes for an IPO it could strike the right balance for Hawke’s Bay.

I acknowledge the feedback received during our comprehensive consultation on a minority IPO late last year. The majority of submitters supported an IPO, but also supported local ownership and the ability for locals to invest if they wanted to. 

As we have undertaken the preparatory work ahead of a vote on a minority IPO, the Regional Council has identified and will put in place a number of protections that would further protect its majority ownership position. Post any IPO, the Regional Council, will retain the ability to determine the Port’s Board. Additionally, we have voted to place two majority shareholder-appointed directors onto the Port Board, increasing the Council’s visibility over governance of the company.

We will also put in place measures which further protect key Port land and we have been working through how we will ensure that a priority allocation is offered to Hawke’s Bay locals in any sale of shares. 

I’m looking forward to pulling all of the information together, reviewing the final investment case and making a final decision with my fellow councillors based on all of the work completed by the Port, the Regional Council and our advisors. The case for investment in the Port has become more and more compelling and I’m committed to securing the funds the Port needs. 

Finally, the Regional Council has a massive work programme ahead of it to remediate large areas of Hawke’s Bay’s natural environment which have historically not been sustainably managed. We have vital work to do in terms of cleaning up and protecting our waterways, investing in upgrading critical infrastructure like our stopbanks, which are coming under increasing pressure, and planting our hill country to stop massive volumes of silt clogging our rivers and coastal marine environment.

Climate change poses a great threat to Hawke’s Bay. It is our job as the Regional Council to respond to this threat, protect our natural environment and future-proof our region for more and more extreme weather.

All of these reasons are why I am now very keen to review the final investment case against the Council’s objectives. We need to deliver a solution for our Port and our region. Along the way we need to retain control of a strategic asset, protect ratepayers from Port costs and build our capacity to deliver the natural environment the people of Hawke’s Bay need and deserve. 

That’s what the decision we’re considering is all about. 

Rex Graham01 June 2019

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