Councils ponder airport deal

Inland Revenue has been asked to rule on the airport plan. Picture / Martin Sykes

Auckland City and Manukau councils are looking to get more bang for their buck from their stakeholdings in Auckland Airport without having to part with the blue chip shares.

The councils are investigating new options to pay for debt on big capital projects such as the $350 million Wynyard wharf development in Auckland City and the revised $800 million eastern transport corridor between the two cities.

One idea is to sell the dividend streams and imputation tax credits in their airport stakeholdings by issuing redeemable preference shares.

But before the councils go to the trouble of setting up what is a costly and complex structure, they have asked the Inland Revenue to make a binding ruling for the transaction. This is expected to take about 18 months.

The councils are hoping to unlock the value in the shares' imputation tax credits, which they cannot use.

Initial investigations show the redeemable preference share scheme reduces the cost of debt to ratepayers.

Auckland City councillors have been told they could sell part or all of the council's $300 million shareholding to pay for high-priority capital projects. The council would forgo an annual dividend of about $11 million but save about $21 million in interest.

The left-leaning council told officers to forget about a sale this term but agreed to investigate the redeemable preference scheme. By keeping the shares, the council could issue $200 million of redeemable preference shares. After allowing for the lost dividend stream of $11 million, ratepayers would achieve a net saving of about $2 million to $3 million.

The previous right-leaning council under Mayor John Banks sold half the council's 25.8 per cent airport stake in 2002 for $190 million.

The Manukau City Council has hung on tightly to its 9.6 per cent shareholding on the basis that the airport is a strategic and valuable asset within its borders.