Delta undermines Dunedin's credit rating

An auditor-general's probe into Dunedin subsidiary Delta concerns Standard & Poor's. 

Dunedin City Council’s problems with its subsidiary Delta Utilities may see its credit ratings fall further.

International ratings service Standard & Poor's yesterday revised its outlook on the council from stable to negative.

At the same time, the AA/A-1+ issuer credit ratings on Dunedin were affirmed.

The Ratings Powers Act means the credit of local authorities is unlikely to ever be seriously threatened, but the rating may affect the cost of borrowing.

The outlook on Dunedin City Treasury was also revised to negative, and the issuer credit ratings were affirmed at AA/A-1+.

“The negative outlook reflects our view that there is a one-in-three chance of a downgrade in the coming two years,” a statement by credit analyst Anthony Walker says.

“This is based on our view that Dunedin may not achieve its financial targets outlined in its long-term plan, with its after-capital account deficits not improving as quickly as forecast.

"If this scenario were to materialise, we consider that Dunedin would have limited budgetary flexibility to improve its financial position without deferring asset renewals, which may lead to future infrastructure backlogs.”

Further downward pressure could be placed on the ratings, depending on the auditor-general’s investigation into the management of Dunedin’s council-controlled trading organisation, Delta Utility Services, “which may weaken our assessment of Dunedin’s management of CCTOs... "

“The ratings could be revised to stable if the council’s budgetary performance strengthens as it forecasts, specifically if the council achieves after-capital account deficits of about 2% of consolidated operating revenues in 2014 and beyond, while maintaining its current budgetary flexibility and a stable political setting,” Mr Walker says.

Delta land purchases

Standard & Poor's was referring to mayor Dave Cull’s commissioning an auditor-general probe into Delta’s buying of land at Jack’s Point and Luggate.

The Delta case involves its acquisition in 2009 of 9.4ha at Jacks Point for $8.82 million and sections at Luggate for $5.3 million. A couple of months ago Delta reduced the value of the land in its financial statements by $7.5 million.

Delta’s purchase of 100 sections at Jack’s Point raised questions as to why a local government lines company would take an equity stake in a speculative development project, particularly in the immediate aftermath of the global financial crisis.

The sections were the last 100 of 350 that beleaguered Hanover Finance had contracted to buy but was unable to settle as it melted down.

The Delta acquisition follows its purchase in late 2008 for about $5 million of half of the Luggate development company then owned by Jim Boult, just before he secured his current chief executive position at Christchurch International Airport.

Delta had been installing services to these projects and appears to have invested in them in order to protect work for the future.

The directors read like a who’s who of the Dunedin businessmen’s network which has controlled many of the city’s major companies in recent years, particularly property ventures.

For example, at the time of the purchases Mike Coburn was a director of Dunedin City Holdings, Delta Utilities (where he still is on the board), Luggate Village Holdings and various other property companies related to Jack’s Point developer and friend John Darby.

Other directors include familiar Dunedin figures Ray Polson, Norman Evans, Stuart McLauchlan, Paul Hudson and Ross Liddell.

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