Kordia blames historic TVNZ debt

The chairman of state-owned communication company Kordia is blaming the company's disappointing interim result - including breached banking covenants - on an unfair allocation of debt when it was split from TVNZ.

Wayne Brown said that when the former transmission division was split from TVNZ in 2003 it was lumbered with all of the company's debt.

"We made up one third of the company but we were handed 100 per cent of the debt from the old TVNZ," Brown said yesterday, reporting a "disappointing" $4.4 million deficit for the six months to December 31.

In the same period in 2007 it made a profit of $5.2 million.

Kordia had been handed what Brown called "sunset assets" such as analogue transmission, so it was obliged to introduce new financial ventures to ensure it maintained its cashflow. Brown dismissed a suggestion Kordia may have been too ambitious in its expansion and borrowing programme.

The revelations come as the Government prepares to crack down on SOEs for poor financial performance and has signalled a major shake up of boards.

Kordia revealed in its interim report it was in current breach of banking covenants because of its debt-to-equity ratio. The Bank of New Zealand had provided a waiver - in which it had drawn down $34.6 million on December 31 and which expires on March 31.

The ANZ Bank, owed $35.9 million, was not taking any action over a breach to covenants but was reserving the right to do so. The Commonwealth Bank of Australia, owed $55 million, had provided a waiver that excepted a potential default in April 2009, the company revealed in its interim report.

Brown insisted on Friday that after subsequent negotiations Kordia had traded its way out of what he said were "technical breaches" using revenue from its Australia contracting business to pay debt over the next three years.

He said that the decision to saddle Kordia with all of the TVNZ debts - leaving the new TVNZ Crown-owned company with its social and cultural obligations debt free - had largely been decided by the former TVNZ board of directors.

His protests to politicians and Treasury had been rejected.

He said he complained bitterly to Government and Treasury about taking on all the debt but it was apparent that it was intended that way because of TVNZ's new role which also included extra funding to meet the charter.

Brown's interpretation of events raises questions about transparency, particularly about how much the loss of debt represented an additional subsidy to TVNZ at a time it was facing a crisis over its governance and relationship with the Government.

His claim suggests that the Government of the day quietly gave the new look TVNZ - which was a key part of its culture and heritage policy - a boost that Brown said was not publicised while Kordia covered its debts.

At June 30 last year, TVNZ bank borrowing was just $27.7 million, substantially smaller than Kordia's.

Brown said that Kordia had no choice but to expand to increase revenue so it could meet debt requirements.

"Kordia had a debt to equity ratio of around 52 per cent, which is too high for what was largely a consulting business. It has been too heavily geared from day one," Brown said.

He said he advised the current SOE Minister Simon Power last week about the historical reasons behind the results.

Brown said that Kordia's position was unique to splits within Government-owned organisations.

Debt problems that led to breaches of banking covenants had been resolved. By the end of the financial year Kordia would have spent $200 million on new ventures including two new broadcast platforms.

Internal cash and debt had funded 80 per cent of this expansion.

The company said that while there would be a short term reduction in profit during its transition, Kordia was now well-positioned to grow its current revenue and the revenue from new investments.

Kordia blamed a 10.7 per cent fall in revenue as due to disruption caused by the sale of two contracting enterprises. The revenues for the ISP Kordia - which it paid $24.3 million in 2007 was 5.8 per cent below budget. But profits were on target for the year to June 30, the Kordia interim report said.

NETWORKER

* Kordia offers customised broadcast and telecommunications network services.
* In 2007 it bought internet service provider Orcon.
* Its digital terrestrial television and satellite platforms allowed the launch of Freeview.

INTERIM RESULT
to December 31

Revenue
2008 - $115m
2007 - $129.8m

Net (deficit)/surplus
2008 - ($4.4 m)
2007 - $5.2 m