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Auckland City officers are trying to get around a ban on borrowing money in foreign currency to fund more than $500 million of debt over the next three years.
The Local Government Act stipulates councils can borrow money only in New Zealand dollars.
But officers, looking to widen borrowing options in the tightening credit market, believe a holding company could get around the ban.
Finance general manager Andrew McKenzie said the council wanted access to as many different borrowers as possible to create competition and reduce debt costs. Restricting borrowing to New Zealand dollars gave those lenders an advantage.
Asked if it was a good thing to be borrowing abroad in the current market, Mr McKenzie said there were risks, but they could be managed through hedging, such as currency swaps.
But Mayor John Banks said there was no way, given the current international credit and capital markets crisis, he would borrow overseas.
Mr Banks, executive director of the funds management company Huljich Wealth Management, said he was conservative by nature when it came to investing other people's money.
Finance committee chairman and Citizens & Ratepayers councillor Doug Armstrong would not rule out borrowing foreign currency, but said: "We would need to be very, very careful if, in fact, we ever contemplated this because I don't think anyone can pick winners these days."
After later speaking with Mr Banks' office, Mr McKenzie contacted the Weekend Herald and contradicted his earlier statement. He said that in today's economic conditions it would not be sensible to borrow overseas in the short term, but the council wanted to have the option at some point in the future.
The council is cranking up its borrowing programme, which has soared in the first year of Mayor John Banks and C&R from $172 million to $317 million.
Faced with projections of double-digit rates increases inherited from the previous council and promising to hold rates to inflation, Mr Banks' council still plans to borrow more than $500 million over the next three years ago to fund a reduced capital spending programme.
Mr Banks' position on debt has changed. In his first term he sold airport shares and pensioner housing to reduce a $350 million "mountain of debt" to zero.
He now acknowledges it is not possible to build an international city from the current generation of ratepayers and there is a place for "prudent" borrowing.
As well as using the holding company to raise foreign currency, officers have suggested it could be used to raise capital through the issue of redeemable preference shares. The shares would pay a fixed dividend.
Financial commentator Arthur Lim said that because councils did not pay tax, dividends from redeemable preference shares offered a good deal for investors and lower debt costs for councils. He said local and central government investments were very attractive in this economic climate.
Mr Armstrong has dismissed another suggestion for the holding company to replace elected councillors with businessmen to run the city's swimming pools, libraries and zoo along commercial lines.
