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Don’t bet against our ambition: Tainui

It’s breathlessly ambitious.

The $3.5 billion vision is for an inland port, freight logistics hub and residential development, intertwined with parks, cycleways and open areas, to be built at Ruakura, on the fringe of Hamilton.

Can iwi developer Tainui Group Holdings (TGH) pull it off?

Tainui has experienced a stunning turnaround, shedding the old wasteful, nepotistic, loss-making ways to become a commercial giant with its The Base/Te Awa shopping mall development in Hamilton, a string of Crown tenants in its commercial property portfolio and hotels in Hamilton and at Auckland Airport.

The Base involved hundreds of millions of dollars – but Ruakura will run into the billions.

Plans to develop its nearly 500ha site will be staged over a lazy 50 years, and it already has a business partner in Chedworth Properties. But the vision seems too long-sighted and the obstacles almost ominously large.

Putting aside the recent knockback by Hamilton City Council, rejecting a private plan change – although TGH has referred its application to the Environmental Protection Agency because it is “nationally significant” – how can Tainui afford it?

Funding streams
The iwi group has two capital funding streams: retained earnings and debt.

Last year, iwi shareholder Waikato-Tainui Te Kauhanganui Incorporated, capitalised a $70 million loan. Tainui, whose balance sheet also includes Waikato-Tainui Fisheries, has already drawn $160 million of its $250 million bank debt, with the headroom earmarked for a number of new investments (see NBR print edition, July 19).

Tainui has amassed assets of more than $700 million, mostly in investment properties, but the tribe’s intention is to grow its portfolio, not diminish it.

Patiently, but pointedly, TGH chief executive Mike Pohio says the iwi’s commercial arm has been in this position before.

“When we started with The Base in 2003 we were unable to secure borrowings because we’d been through a period where TGH had defaulted on loans.

“We were emerging as a commercial enterprise and I’m sure the question got asked at that time, can we do all of this on our own, could we spend $300 million to $400 million?

“That looked like an insurmountable proposition at that time.

“But what has happened, of course, is that we’ve drawn in the first instance on a joint venture with arguably New Zealand’s best retailer, in The Warehouse, we’ve drawn on the input of others in terms of design, construction, project managing, financing.

“We’ve been able to draw all of that together, buy out our joint venture partner and get to a point now where through a succession of masterplans and a succession of stages we’ve got absolute confidence that we can not only finish that project but we can turn our attention to Ruakura."

Mr Pohio admits $3.5 billion looks “way bigger” than its balance sheet can afford.

But for Tainui it’s about baby steps – get the regulatory approval, get the infrastructure in and the initial development away, before revisiting the pace of the development and the potential of pulling in partners to exploit its asset.

“We don’t immediately rush towards a selldown of the proposition at all, we don’t immediately rush towards a joint venture.

“What we have got the capability to do is truly establish it and draw in, as is appropriate at each stage, those skills and resources and partners that will turn into something valuable for us and for them.”

Chasing returns
Tainui’s new investment strategy, as outlined in NBR print, is riskier as it chases higher-yielding returns. But it is also reading the market – stalling planned expansion at The Base until the retail environment recovers.

A chief investment officer, who is expected to be appointed within weeks, will bring a new eye to its existing developments and oversee new ones.

Tainui is considering investing in companies, after a brief but successful foray into equities, and broadening of its portfolio beyond commercial and residential property. It’s another seemingly mature move, although only time will tell if their success at The Base will be replicated.

At its core, Tainui remembers why it is there.

Mr Pohio says it will deliver on promises to its shareholder for increasing dividends and keep to a prudent 30% bank debt to total assets gearing.

Sure, he says, a purely commercial approach would give a logical argument for divesting some of its lower-yielding investments such as those in forestry, agriculture and fishing.

“But that disregards who we are and who we’re accountable to.

"Our shareholder who received the settlement has charged us with managing those settlement assets and the intention our shareholder has is to grow the tribal estate, not shrink it.”

dwilliams@nbr.co.nz

More by David Williams

Comments and questions
79

Is there a commercial demand for such an inland freight port? If not, and Tainui goes bankrupt, do all of the members of the tribe share liability?

Do all shareholders share liability when a company goes bankrupt or are you just insisting on a new standard for Tainui?

I am suggesting nothing of the kind. In one sense, Tainui Group Holdings is not a completely conventional company and presumably has a fiduciary duty of care as well as a social responsibility to its beneficiaries. In such a case, is it really responsible to engage in this type of risk-taking? I think that the first question in my posting is the more salient one to answer.

I think you are trying to set them up quite differently to any other organisation, and you have no right to do so.

The project itself is one of many, but deserves debate, including where it sits within their own overall investment risk management strategy. But why is that debate your business?

If you don't want public debate, don't promote yourselves in the business press.

And the answer to my first question is?

So self-righteous..... Perhaps you think they should have declined comment to NBR? I could then just imagine what your comments would be. And you still haven't read the article properly, yet you insist on asking a question that is largely answered by the article. And for some sort of reason you think they should be accountable to you.

Tainui has the perfect right to keep much of its business to itself. (The public doesn't have an inviolable right to know everything.) But if you go to the press promoting the project, then you have changed the game. You can't then angrily tell everyone who asks a question that they don't have that right. It's usually safer to try to answer the question to the best of your ability and without acrimony.

Just when did Tainui go out to promote the project in the way you say, please?

It's got the makings of a white elephant -- the biggest players in the district - viz the meat industry and Fonterra have their own established cargo flows and infrastructure in place either to Sulphur Point or Auckland.

Good to see our largess being put to good use.
liberte

Is following a high-risk growth strategy in the interests of most Maori?

With so many Maori languishing in poverty, prisons and child abuse statistics, wouldn't a more moderate or balanced growth strategy be appropriate with a focus on sustainably increasing Maori living standards?

If the tribe goes bust because of high-risk ventures funded predominantly with debt, doesn't it then mean they are risking the lives of the poorest, who apparently get some benefits like jobs?

My concern is there are only a few at the top getting rich and there is not much trickle down to the poor Maori, while we continue to see Maori chiefs turning up to Parliament in a Rolls.

What evidence do you have for your assertions that only a few at the top are getting rich at Tainui, that there is not much trickle down to the poor Maori and that Maori chiefs (presumably you mean Tainui) are turning up to Parliament in a Rolls?

In fact, do you know anything about Tainui or are just expressing blind prejudice?

The emperical evidence is that Maori as a whole still languish at the socio economic bottom on New Zealand as they always have; there has been no change. If the tribes were passing on the benefits of treaty settlements to the majority of Maori would you not expect a decline in Maori's over-representation at the bottom of these statistics? The statistics I refer to are wage poverty; child abuse; family violence; imprisonment; welfare beneficiaries.

What emperical evidence do you have to the contrary?

Somewhat typically, I suggest, you expect results immediately in a way you would not expect of others. But if you investigate the projects, you can see the results you are talking about.

"You expect results immediately". Absolutely; how else do you pay the 15% on $3.5 billion?

If the tribe misses an interest payment it will be put into receivership immediately.

I was referring to the socio-economic benefits you are expecting.

Do all the members of the tribe even ever benefit during the good times? Ngai Tahu ordinary members never have.

Doug Graham, Jim Bolger and the rest of the iwi-vote seeking Nat pack should never have handed over (and National keep on doing so) hundreds of millions of all other NZers' hard-earned money to the powerful "tribal" leaders - without setting in place any criteria for returning accountability to the taxpayers - those forced to fork up for supposed injustices which today's generations have had nothing do with.

Meanwhile , the circus goes on...hundreds of millions today still being pushed at complaining iwi, while cash-strapped public hospitals keep getting forced to push patients off waiting lists and now have physicians resigning... because they have so many patients to be seen, in some areas stacking up a year ahead, that they can't face the impossible workload, and are leaving for our saner, trans-Tasman neighbour.

Why are we tolerating this impoverishing of our country? And where now is your Like/Dislike option, so we can see what the consensus of thinking is on these issues? Please restore!

Why don't you bother to find out. And what is the basis for your assertion Ngai Tahu ordinary members never have seen any benefit?

Presumably you know nothing about the health, educational, training and employment resources established out of Treaty settlements? Or don't you want to know? It's so much easier to be ignorant and prejudiced.

What a bunch of whingers!

This is a vision of what might be achieved over the next few decades: I didn't see anything about blowing $3bn before Christmas.

Didn't you read the stuff about "baby steps" and adjusting plans to fit market reality?

This is great, forward-looking thinking from Mr Pohio, who has achieved a great deal so far. Unlike the rest of you, I enjoy reading an upbeat success story.

We should wish him luck, not complain.

Even the author said it's high risk and debt funded. I think you are siginficantly overstating the case calling this a success story. Gambling the future of Maori families by over reaching on one massive project is not a baby step - it's a bloody risky leap of faith. I thought the demise of the finance company sector might have taught some lessons...

Perhaps some public funding to help you read the article may be of assistance. Look at the spread of investments talked about, please!

Tom - I am greatly relieved to see that I am not the only person who has actually read the article.

A $3.5 billion project all on the fringes of Hamilton. Not geographically diversified at all.

The risk is all centralised in one cohesive project which is what was being quite clearly pointed out to you numbskulls. Take the race blinkers off and look at the underlying merits of what's being proposed.

Look also at the diversification of Tainui's portfolio, some of which is actually referred to in the article (believe it or not!) and some was covered in the NBR on 19 July.

Interesting that "public funding" is your first and only suggestion to a perceived problem. Classic.... get off the gravy train...

Looks like you definitely need the aid of some education to pick up the sarcasm...

You'd benefit from speaking to a business lender, who will tell you no one will fund this hair-brained project; so it's about as doomed as your arguments.

Such arrogance again. I would look much more closely at any projecty's details before I came to your judgements - hence I would never trust you with an investment.

I wasn't aware that they had "over reached on a massive project".

There seems to be some confusion about tenses here - things that may happen as opposed to things that are happening, have happened or will happen.

My point is they seem to have done well so far (ie, been successful and achieved a great deal), they have big ideas (good thing) but are being cautious and commercially focused (another good thing).

Isn't NZ a great place? Got an idea or some ambition? Please keep it to yourself.

You've missed the point and there has been no confusion over tense.

Measured ambition is great, but look at what the downside risks are from over extending, which even the tribe hinted might be the case.

The weighted average cost of capital is going to be very high, skewed heavily toward debt financing rates. That's the first alarm bell because debt is far more risky. If this project failed it would wipe the tribe out. That's the second alarm bell. Then the loser will be Maori families who lose jobs and other benefits they receive.

If ...... they "over extend"

If .... "the project failed"

If .....

Confused about tenses and conditionality too.

I would have said that "measured ambition" is precisely what Mr Pohio is describing.

If they had had a proper business case, they might not have put their beneficiaries at risk. (Third conditional).

More arrogance - you don't even know if they have a business case and what it might be....

If you think one $3.5B project is measured ambition with a total asset backing of $700M (not net asset backing) you are living in dream land. I doubt any bank will touch it at even lending rates over 20%.

Given the project time frame treaty settlements will have finished, so the tap to free money will be off, so this really is dreamland stuff with no financing.

And you wonder where our taxes go.

Can't fail to lose, safe in the knowledge that the govt. will backstop any bad investments. Hell, Tainui would even short their investment bets if the govt. stumped up the ante.

Hey Tom - good on you for being rational in the face some pretty stupid people making blindingly idiotic statements.

One fool refers to the tribe getting 'our largesse' - hmmm - I rather think the tribe would have preffered not to have been comptely rorted back in the day in the first palce and then there'd be no need for 'our largesse' to be lavished upon them.

This tribe has picked itself up and made ongoing good use of its monies - all power to them.

How do 'Maori' and the 'tribes' stop recognition of the Pakeha part of their ancestory, given there are no full blood Maori in NZ?

And how to 'Maori' stop recognition of the Moriori people who were in NZ first?

I have no doubt if the Moriori were given a land settlement process the number of Moriori would skyrocket overnight. It's all about money...

Well, it cerainly is ironic that statisticly a majority of Maori will have more English ancestory than many of those called non-Maori, whom are beset by claims against them under the treaty.

There is a wide population of Aussie, Scottish, Irish, South African, European and Asians who are all NZers who have no ancestoral link to the English, and are all being aggrieved by the settelement process, and labelled Pakeha and responsible for the colonisation of NZ 200 years ago. Just crazy and unjust.

At least try and keep up with the play - it is now accepted as a result of DNA evidence that what we were taught in our school education journals was wrong. There was no Moriori people here before the Maori. The only genetic differences came from their subsequent isolation on the Chathams.

Mosey whats your point?

We know where our taxes go - the info is pretty public so your point is?????

Great idea and good on them.
I do hope they receive reciprocity in the ease of consent processes as Maori have given others over the years.

I do wonder the probability of a taniwha emerging to delay the development...

Why not fund a project that with a guaranteed Maori market? Such as creating a social welfare system for Maori that could be part government funded and part tribe funded? At least this way the money will get to the people and not the "directors", "elders" and their associates business interests.

More unsubstantiated slurs. Show us any proof you may have. And tell us all about the projects Tainui have undertaken, since you clearly know so much about them (not...).

Previous small projects are not an indicator of success of a massive $3.5B project. The project has no details of where the money will come from other than saying "debt and equity". If your assets are only $700M, and I am sure there are liabilities against those, then who is going to fund this? It certainly won't be the government or the major banks.

The tribes would be better giving all their money to the NZ Superfund and establishing a sustainable revenue stream, of which part can be paid directly to those Maori who need it now in the form of benefits, job creation assistance, child abuse intervention, prisoner rehabilitation.

Throwing all your eggs into one basket on one multi-billion dollar project is irresponsible and unethical to the extreme, when thousands of Maori could be helped now with responsible investment and then allocation of investment revenues.

For goodness sake, read the article and you would know straight away that they are NOT putting their eggs into one basket!

No. It's one project in one region valued at their total asset value.

If you can't understand the inherent risks from a lack of geographic and project diversification, then please attend Finance 101 at your local uni.

Please try reading the article: "Mr Pohio says it will deliver on promises to its shareholder for increasing dividends and keep to a prudent 30% bank debt to total assets gearing."

Plus please read in the article about their other projects.

And you make your judgements on them doing it all on their own.

You would certainly not pass English Comprehension I or Logic I.

Where is the $3.5B coming from, Einstein?

They only have $700M assets; and most of that isn't cash.

No lender will fund a project of this size without the normal capital backing? That is because it's too high risk in the event it fails. Simple stuff, huh!
Please read and learn and take the blinkers off because a Maori person wrote the article.

To maintain that ratio, the tribe will need to bolster total assets from $700M to $10 Billion, given the $3.5B project will be predominantly debt funded. Where is the $9.3B coming from?

I hope both of the anonymous authors above now feel foolish in light of the comments below. I also look forward to their comments on any other investments proposed by anyone in NBR's business pages.

I cannot believe the extent of ignorant comments expressed here from people who have not read the article, who know nothing about how Tainui spends its money on projects, and yet who feel perfectly qualified to comment on Tainui and its business investments. I don't see such a range of comments on any other business ventures discussed in NBR.

Frankly, what Tainui does with its money is up to them and they are accountable to their people - not to a bunch of arrogant, ignorant people seeking to make racial slurs in NBR.

What are your qualifications and experience Tom, given you are calling NBR readers' comments in general "ignorant"? What I have seen is you saying readers opinions are igonorant, BUT, your only evidence for that is believing the writer's article verbatim; which is not very educated.

Calling undeucated, prejudiced comments ignorant seems a pretty fair call to me, substantiated by further details of the project below.

No. It's one project, in one region, valued at five times total asset backing.

An obvious lack of diversity, and lack of a sensible business plan. No one will finance it.

See my response to you above. So judgemental with so little knowledge......

They only have $700M assets, but the project is $3.5B.

Where is the money coming from? Are you financially illiterate?

The debt to equity ratios you mention are just dreamland unless they get a pot of free cash from somewhere. Do the math.

As I said before, where is it stated that Tainui would do this project on their own? Now enlighten yourself with the further details on the project and Tainui's investments below.

Forget the politics and recognise that mega projects taking a long time and a lot of funding provide the biggest profits for those that pick the projects up when they fail.
To build ain't that difficult, but to make real profits from mega property projects is a totally different ball game.

Tainui would be better off buying lots of houses in selective locations and reaping the more assured and proven capital growth with lower admin costs.

Arohamai, visionaries are often misunderstood.
There are many choices available in utilising the pool of assets that Waikato-Tainui (Tainui Group Holdings) have available. One option may have been to place the funds and other assets with a bank, financial institution or advisory company to manage on their behalf and to have their ticket clipped in the process. Ask all the shareholders in the various finance companies which have collapsed in recent years if this is an option they would choose again.
Fortunately for the Waikato region, TGH has concentrated on developing a range of local investments. Expertise has been co-opted through a range of astute joint ventures with companies that have expertise in the industry sectors relevant to their investments and the performance to date is evidence of a well-executed plan of local commercial development. Their shareholders and the region are well served by this approach.
No right thinking person would think that the inland port project be undertaken/managed/financed solely by TGH. The three hotels in their current portfolio were in joint ventures with others, including the local council and ACCOR in Hamilton and with Auckland Airport and ACCOR in Auckland. There are a number of local strategic partners that would be appropriate for the inland port, including Fonterra and other local exporters, that will participate through expertise and capital to enable a project of this scale to be developed.
We wish you well with your endeavours Waikato-Tainui and we are quietly confident that not only their shareholders but the region and the country will benefit.
Mauirora

So if this is going to be a JV, you are asking a partner to stump up about $3B... Fonterra - there would be a shareholder revolt against any board stupid enough to pusue a multi-billion dollar risk bet.

Whoever said it was going to be just one partner? And it has been specifically said that the vision for the project is over many years, decades plus - not for it all to happen at once. It does become easier if you read what NBR has written.

I feel it might be useful to make a few points which are key to this project and the comments being made here: 1. TGH applies a high degree of discipline, especially in terms of investment decision-making and management. The proof of that has been clearly demonstrated. 2. In the possible, but very unlikely, event that the Ruakura proposal does not proceed as planned, TGH will redirect its investment capacity into other projects. 3. Ruakura will be developed in the same way as TGH has developed The Base – in stages and by securing lease commitments to underwrite the capital commitment. Remember, this is a 30-50 year project. 4. At Ruakura, the appreciating value of the land, completed buildings and completed stages are significant contributors to the equity required. If you want some facts about how carefully this project has been worked up, please have a look: http://www.tgh.co.nz/default.asp?sid=15&cid=&aid=

The disconcerting thing Mike is that most of the people who comment won't believe you, and they would never comment in such a way about a project that didn't involve Maori. They are never going to invest with you regardless, so in the end we should just ignore them and good luck to Tainui for its ongoing commercial success and betterment of its people.

Can we not have a discussion about the merits of a project in NZ, of a magnitude that it would probably effect the whole country, without people like Tom throwing in a race issue? Thats not what business is about, Tom, and you should be ashamed for such assertions in a serious business forum such as this.

What rubbish - are you seriously suggesting that all the comments above would have been made if it wasn't a Maori business investment? Where are all the comments elsewhere in NBR on non-Maori investments?

There have been no other multibillion-dollar investment proposals by relatively small companies being mooted without a solid business plan or bonifide funding source. That's about business, not race, buddy.

No - you are the ones demanding all sorts of things from them that don't even equate to where they are at. It is NOT an investment proposal. You should be ashamed of yourselves.

I'll tell you what shows your prejudice - most don't bother to read the original NBR article properly and take note of some of the qualifications expressed there. Most ignore further comments on the project that clarify it further. And, as Tom says above, it isn't an investment proposal at this stage.

And I'll bet most of you know nothing about TGH, anyway. But heck, it's Maori so it must be a disaster, right "buddy"?

Big dreams with no money...

Tainui seem to have done remarkably well with their money in investments and dreams so far - or is it easier just to ignore all of this?

Where will the financing coming from?

What dollar value have you attributed to land value appreciation?

Hope it goes well.

Nothing like an article on Maori business to bring out the idiots. Look at the calibre on the Tainui Board, look at their progress in the last 5 years, their success at Te Awa, the solid dividends flowing to the tribe. While you are all whinging, these guys are getting on with it. For goodness sake, could all the rednecks, racists and outrights idiots go get a life.

Nothing like an article on Maori business, that when the serious questions are asked, some Maori bystander throws up the race card.

Nothing like an article on Maori business to bring out all the doubters and denialists who would never question investments in the same way by non-Maori businesses. Yet they are convinced that it is their business when it has nothing to do with them. Who in reality is playing the race card....?????

As a Kiwi of Scottish ancestory who now lives in Asia, I think it's great to see Maori aiming big and doing very well; like Tainui.

I am concerned that critical evaluation of big plans draw cries of rascism. Debate is how the optimal decision in business is found. It's good and it's not about race.

If you walk into any banker's office you will be grilled before you get any financing regardless of race, gender or ancestory - it's just irrelevant. It's about meeting the bank's strict lending criteria, which at its core looks at the companies' security / collateral and how / if the loan can be repaid.

Living in Asia, I get descriminated against daily. I think Maori are getting some pretty good treatment in New Zealand, but if you keep throwing racism in the face of serious business discussion whenever someone questions your plans, then many good people and good business opportunities will pass by.

I would have no problems at all with your comments if the same critical evaluation took place in NBR's comments' columns on all big investment proposals. The simple fact is that it doesn't - instead we have multiple critical comments on a potential Maori business project that in essence have the same theme: Maori are incompetent in business and don't know what they are doing.