Dairy firm loan details kept under wraps
nzherald.co.nz/business
Nearly two months after the controversial announcement that Westland Milk Products was approved for a $9.9 million taxpayer-funded Provincial Growth Fund loan, the commercial terms are still unknown.
The ministry for business, MBIE, which oversees the PGF, has refused a Herald request under the Official Information Act for interest rates and term details of the loan, branded “corporate welfare” by some critics.
MBIE said contract negotiations were still under way and releasing the material before the contract was final risked compromising negotiations.
Westland Milk Products in a written statement said negotiations on the final detail of the PGF “investment” in the company’s $22m segregation plant project were ongoing.
When the interest-bearing, repayable loan to the company was announced on November 29, Westland said it would have been happy for the commercial terms to be disclosed but Government officials ruled them confidential.
Westland’s latest annual report noted cash flow for the year was below expectations, its milk payout to farmers was not competitive and “obtaining new capital would make a significant difference to the cooperative”.
The company’s chief financial officer at the time of the loan announcement, Dorian Devers, told the Herald “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,” said Devers, who has since left the company.
Westland was paying 2.57-3.49 per cent on its existing debt.
News of the PGF loan was criticised by dairy industry participants and economist Cameron Bagrie.
One competitor who declined to be named said it was “bizarre” the Government would support a flagging company for an amount that was “not material” while others applied to their banks for finance while making their own success in the $14 billion dairy export industry.
Bagrie said the loan set “a dangerous precedent” and appeared to be corporate welfare.
His view was generally supported by other business observers approached for comment.
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.
Regional economic development minister Shane Jones who announced the loan did not respond to an approach for comment on MBIE’s refusal to release the commercial terms.
At the time Jones said the loan, part of a $140m PGF support package for the West Coast, was “classic economic development” for a neglected region, took a swipe at “Aussie” banks, and accused critics of a double standard. He accused banks of not “giving a fig” in relation to jobs saved, strengthened infrastructure and economic development.
Asked if he was aware of Westland Milk Product’s financial performance, Jones at the time said he didn’t want to comment specifically on the company.
Westland Milk Products is a farmer-owned co-operative, which employs 430 people.
In the 2018 financial year, it had 429 milk suppliers, down from 435 in 2017. Revenue in 2018 was $693m, compared with $630m in 2017, and $588m in 2016. Westland’s total equity at the time the loan was announced was $232m. Its total longterm borrowings were $232m.
Westland’s 2018 annual report said the value of its tangible assets was $571m. Westland’s need to change its capital structure was discussed at its December annual meeting, after the loan was announced. It was closed to all but farmer-shareholders.
In a subsequent statement, the company said its capital structure review had attracted a number of proposals from interested parties.
Chairman Pete Morrison said on the strength of the indicative proposals, the board would go to the next step of the review process.
There would be an update in March.