Sale of Alpine Energy shares raises concern

Business Development and Chartered Accountant firm HC Partners has highlighted an number of concerns over Timaru District Holdings Ltd’s (TDHL) proposal to sell its shares in Alpine Energy and is questioning why ratepayers are not seeing a better return.

In its submission on the TDHL proposal to sell the 47.5 per cent shareholding in the lines company, the firm highlights concerns around the valuation of the shares, the consultation process, and the ‘‘rushed’’ timeline which it labels a ‘‘complete nonsense’’. The submission also questions why the Timaru District Council doesn’t get a greater return from its investment.

‘‘A conspiracy theorist could conclude TDHL have already arranged some sort of back room deal where they already have found a prospective purchaser at $110m,’’ the submission says. It also queries where TDHL got its proposed sales price of $110m.

HC Partners’ submission expresses scepticism about how international accountancy firm EY (Ernst Young) valued TDHL’s share of Alpine Energy at $87.6m to $97.9m, about half of what rival firm Deloitte valued it at the previous year ($186m).

‘‘The community would be much easier to placate if the asset is sold for $17m more than the recent valuation than if the asset is sold for $76m less than the prior year valuation.’’

HC Partners director Paul Wolffenbuttel will be one of 42 submitters to speak to his submission at hearings during Tuesday’s extraordinary council meeting, scheduled to start at 9am and finish about 5.40pm to sell down its 47.5 per cent share for an estimated $110m.

The council received 574 submissions by the December 10 deadline. Approximately 90 per cent expressed opposition to the proposal.

In its submission, HC Partners raises concerns about the consultation process, which it describes as ‘‘complete nonsense’’. ‘‘It is complete nonsense to create a timeline and then bully everyone into believing that the timeline cannot be altered or changed.’’

‘‘We would like to see the debate deferred until the next Timaru District Council elections to enable the ratepayers and true owner of the asset to elect the councillors and mayor who most closely align with their views’’.

Wolffenbuttel told Stuff that he understood councillors might feel like the return from TDHL is inadequate.

‘‘We agree. We feel it is inexcusable that TDHL receives $4.7m in cash from Alpine yet can only provide $2.6m back to the council,’’ he said.

‘‘If we were ratepayers in Waimate or Mackenzie all of the $4.7m would be available to our council to reduce rates. The Alpine Energy investment is not to blame for the poor return to council. Alpine Energy produces the majority of TDHL’s cash return.’’

TDHL’s discussion document on the proposal says that lines companies are heavily regulated, and therefore prices and infrastructure would not be affected by a private buyer, but HC Partners’ submission disputes this.

‘‘The reliance on central government regulation to ensure private owners will maintain and grow the network in the best interests of ratepayers is incredibly naive and shows a lack of understanding of the drivers of private enterprise,’’ the submission says.

‘‘The councillors have a responsibility to the ratepayers of South Canterbury to ensure this critical infrastructure is well maintained and available to ratepayers at a reasonable price ... in our opinion it is not appropriate for the council to pass this responsibility over to the party with the biggest cheque book.’’

HC Partners also believes the council’s proposal to reinvest $88m of the $110m into a ‘‘diversified investment portfolio’’, as highlighted in the discussion document, is ‘‘seriously flawed’’.

The discussion document assumes a range of investment returns for the proposed diversified investment portfolio at 5 per cent, 8 per cent and 10 per cent.

‘‘Put simply, Alpine has been a much better investment for the council than the diversified fund they now wish to invest in ... the discussion document fails to recognise that the investment in Alpine Energy Ltd over the last five years has grown from a value of $82.7m at June 2013 to a purported value now of $110m.’’

‘‘The discussion document ... assumes a range of investment returns for the proposed diversified investment portfolio at 5 per cent, 8 per cent and 10 percent.’’

‘‘Embarrassingly, the current investment in Alpine over the last five years has achieved a better return than the top of this range.’’ The submission puts that return at 12.5 per cent.

Alpine Energy is jointlyowned by TDHL (47.5 per cent), LineTrust South Canterbury (40 per cent), and the Waimate (7.54 per cent) and Mackenzie (4.96 per cent) district councils.

LineTrust South Canterbury has indicated its desire to purchase some, if not all, of TDHL’s share should the sale proceed. Waimate and Mackenzie district councils have indicated that they wish to maintain their shareholdings.