Dam share demands set to flow
Dam proponent Waimea Irrigators Ltd has an obligation to issue an additional 80 water shares a year if the proposed Waimea dam in the Lee Valley, near Nelson, is built.
‘‘So from around 2022,’’ said Waimea Irrigators Ltd (WIL) project manager Natasha Berkett. ‘‘This represents an overall target of approximately 4000 total water shares and is a cumulative target – it doesn’t have to be 80 shares exactly every year.’’
Therefore, WIL intended to continue to offer and market water shares following the close on March 22 of its initial offer, which it launched last Friday.
WIL and Tasman District Council are proposed joint-venture partners in proposed dam. The project is tipped to be funded by a mix of ratepayer, irrigator and Crown funding.
WIL aims to raise $16.5m of equity via the sale of 3000 water shares at $5500 each. Its initial offer for those shares is outlined in a product disclosure statement (PDS), which reveals the obligation to issue an additional 80 shares a year. The obligation is associated with an expected loan from Crown Irrigation Investments Ltd (CIIL) for WIL.
Berkett said that if WIL did not issue the additional shares, finance charges and operating charges would increase by 2 per cent a year from 2022.
WIL anticipated that once the dam was built, the benefit of a supply of water for irrigation ‘‘will be evident and shares will become even more desirable’’.
An analysis had shown there was additional land available to meet the CIIL obligation, she said.
However, those additional shares look likely to come at a higher cost.
The PDS says that WIL anticipates water shares will be about 15 per cent higher after the close of the initial offer, increasing by about 2 per cent every year thereafter.
Berkett said that based on the current offer, the estimated price in nominal dollars would be about $7000 a share/hectare in 2023, the time WIL would seek to issue 80 additional shares each year.
‘‘This is about a 6 per cent increase in real terms when allowing for forecast inflation,’’ she said. ‘‘For landowners and potential investors, we have said and will continue to say that now, during the initial share offer, is the best time to consider purchasing water shares because they are at the lowest price they are expected to be – $5500 each.’’
Another obligation outlined in the PDS is that WIL use ‘‘reason- able commercial endeavours’’ every five years to refinance the 15-year CIIL loan.
Berkett said once the dam was operational, WIL expected to be in a ‘‘good position’’ to obtain funding with a commercial bank. The refinancing would need to be without the benefit of the council underwrite proposed for the CIIL loan.
Waimea Irrigators and Water Users Society consultant Brian Halstead said he believed the project remained ‘‘high risk’’.
A subscriber would risk a ‘‘poor land and building price’’ if he/she sold because there was a contingent liability to keep paying for 15 years.
‘‘In some cases, the buyer will not want the debt or any shares and so will see them as worthless,’’ Halstead said. ‘‘Generally because of that contingency, values of affiliated properties will not materially increase in value and could possibly reduce.’’
In his view, the initial estimate of $600 a share/hectare in annual charges was ‘‘uneconomic to all but pipfruit orchards’’, he said, adding that he anticipated they would be the main subscribers.
Halstead, who is also a grower on the plains, said he did not intend to buy shares.
‘‘I’m not concerned at all as a grape grower,’’ he said. ‘‘We’ve got heavy ground and I’ll get by.’’
However, he said he believed it could be an agonising decision for some other irrigators.
‘‘If you’ve got a crop that depends on water, you’ve got to make a decision about security of supply ... or you gamble.’’
Agreements for leased land would have to be rewritten to accommodate any subscription.
‘‘Who would pay the annual maintenance fee and capital?’’
Halstead suggested irrigators consider seeking advice from someone who understood horticulture or farming as well as their finances.
The society intended to hold workshops for its members to better understand the terms of the WIL offer.
‘‘Others can attend by reserving a place,’’ Halstead said. ‘‘Details will be advertised.’’