Questions raised over Westland loan
Govt ministry keeps grant terms secret
Westland Milk Products, approved for a taxpayerfunded Provincial Growth Fund (PGF) loan branded “corporate welfare” by some critics, says it would have been happy for the commercial terms to be disclosed but government officials ruled them confidential.
The Westland dairy exporter, which in its 2018 annual report discussing a capital restructure said it had “relatively high debt and limited financial flexibility”, is to get a $9.9 million interestbearing, repayable loan towards a $22m manufacturing plant project to produce higher-value goods.
The report said Westland’s cash flow was below expectations, its milk payout to farmers was not competitive and “obtaining new capital would make a significant difference to the co-operative”.
Westland’s chief financial officer Dorian Devers told the Herald the company didn’t ask for confidentiality. That had been imposed by the Ministry of Business, Innovation, and Employment (MBIE), which “didn’t give a reason”.
“One thing we can share is the terms are attractive to us.
“We could have financed this in other ways but the terms we have been given from the PGF are more favourable. It’s a longer-term loan than we can get from a bank which is nice,” Devers said.
An industry competitor who declined to be named said it was “bizarre” the Government would support a flagging
Cost-benefit analysis when we consider capital allocations are no longer narrowly confined to the square that the Aussie banks impose on the New Zealand economy. Shane Jones
participant for an amount that was “not material” while others with strong balance sheets applied to their banks for finance while making their own success in the $14 billion New Zealand dairy export industry.
Former ANZ Bank chief economist Cameron Bagrie, now a private consultant, said the loan set “a dangerous precedent” and appeared to be corporate welfare.
His view was generally supported by other business observers approached, who said it was another example of this Government’s meddling in private enterprise, but would not go on record.
However, privately, the chairman of a successful listed company said the idea of applying for a PGF loan, if the commercial terms were favourable, was no different to applying for other state grants. He did not dismiss the Government’s part in business development so easily.
Regional Economic Development Minister Shane Jones, who announced the Westland loan last week as part of a $140m PGF support package for the West Coast, said the loan was “classic economic development” for a neglected region, took a swipe at “Aussie” banks, and accused critics of a double-standard. “West Coast economic stakeholders have told us they’ve been failed by the banks. The banks have a very simple approach — it’s ‘how much capital am I exposing and how much interest [is there]?”’, Jones said.
“They don’t give a fig [about] jobs saved, strengthened infrastructure, concentric circles of economic development.
“Under our new approach within the Government, costbenefit analysis when we consider capital allocations are no longer narrowly confined to the square that the Aussie banks impose on the New Zealand economy.”
Asked if he was aware of Westland Milk Product’s financial performance, Jones said he didn’t want to comment specifically on the company.
“But I would say it is an enterprise based in a part of New Zealand that is going through a challenging transition — GDP is substantially reduced, legacy industries are being closed down. I’m part of a Government trying to introduce capital to help them in this transition.”
He noted 47 officials are involved in administration of the PGF, and its appraisal committee had eight independent members, with Cabinet ministers having the final sign-off of applications.
He would look into why MBIE had deemed loan commercial terms confidential.
Westland Milk is a farmerowned co-operative, which can trace its business legacy in the isolated region back 150 years. It employs 430 people.
In the 2018 financial year, it had 429 milk suppliers, down from 435 in 2017.
Revenue was $693m, against $630m in 2017, and $588m in 2016. Westland’s total equity, Devers said this week, was $232m. Its total longterm borrowings were $232m.