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That
the Council
1. Receives
the report Supplementary information - Holding Company decision (R26950) and its attachments (A2904599 IHL
constitution changes incl 7 June JSC, A2904600 IHL SHA changes incl 7 June
JSC and A2904604 Summary of constitution - changes incl 7 Jun JSC).
Recommendation from the Joint Shareholders Committee
The Council notes that:
Purpose
A. The
purpose of these resolutions is to seek the Council’s approval of the
documents and transactions necessary to approve the:
a) Restructuring
Proposals (including the Initial Share Issue); and
b) Financing
Proposals (including the New Share Issue).
B. The
Restructuring Proposals, Initial Share Issue, Financing Proposals and New
Share Issue are explained below.
A new holding company
for Port Nelson Limited and Nelson Airport Limited
C. Nelson
City Council and Tasman District Council (together, the Shareholders) have
together been investigating the incorporation of a holding company which they
will own in equal shares. The holding company will hold and administer
investments in entities in which the Shareholders have a substantial interest
for the benefit of the Nelson and Tasman regions, being Port Nelson Limited
(PNL) and Nelson Airport Limited (NAL).
D. Nelson
City Council and Tasman District Council through their Long Term Plan process
and Joint Shareholders Committee (JSC), have each received and reviewed
advice from Deloitte about operational synergies of holding investments,
being PNL and NAL, in a holding company, and tax structure options.
E. The
name agreed for the holding company is Infrastructure Holdings Limited (IHL).
F. The
initial directors approved for IHL are Catherine Taylor, Paul Steere, Gerrard
Wilson and Paul Zealand and an independent chairperson is being recruited.
Restructuring Proposals
G. As
part of the proposal to incorporate IHL, it is proposed that each of the
Shareholders transfer all their shares in PNL and NAL to IHL (Share Sale) for
$8,446,000 in total (Purchase Price). The Purchase Price will be owed to the
Shareholders in equal portions (being $4,223,000 each). The Crown holds, and
will continue to hold, one special “Kiwi Share” in NAL.
H. The
Purchase Price allocation is:
a) $2,400,000
for the shares in NAL; and
b) $6,046,000
for the shares in PNL.
I. Nelson
City Council and Tasman District Council will each subscribe for 42,230
ordinary shares in IHL (being 84,460 ordinary shares in total) (Initial
Shares), at an issue price of $100.00 per share (Initial Share Issue). The
total subscription amount for the Initial Shares is therefore $8,446,000 (Initial
Subscription Amount), which is equal to the Purchase Price.
J. Accordingly,
the Purchase Price will be satisfied on a cashless basis by set-off against
the Initial Subscription Amount.
K. The
sale of shares in PNL and NAL and the subscription for the Initial Shares
will be referred to in these resolutions as the “Restructuring
Proposals”.
Financing
Proposals
L. The
New Zealand Local Government Funding Agency Limited (LGFA) is a limited
liability company owned by central government and local authorities. It was
established to borrow funds and then on-lend those funds to local authorities
and (now) council-controlled trading organisations (CCTOs) at lower margins
than those local authorities and council-controlled organisations would
otherwise pay.
M. Currently,
PNL and NAL service their debt requirements through ordinary bank borrowing
from Westpac New Zealand Limited (Westpac). However, it is projected that
PNL’s and NAL’s debt requirements and financing costs may
increase over the next 10+ years to meet infrastructure-upgrade demands.
N. Given
the projected increase in PNL’s and NAL’s debt requirements and
financing costs, IHL’s primary purpose is to operate as a treasury
vehicle for PNL and NAL. To achieve this purpose, it is further
proposed that (Financing Proposals) IHL will:
a) join
the LGFA borrowing programme (LGFA Accession) as a CCTO, following which, IHL
will be able to borrow funds directly from LGFA by issuing securities to
LGFA;
b) enter
into borrowing and risk hedging facilities with Westpac, which is PNL’s
and NAL’s current bank; and
c) on-lend
amounts borrowed from the LGFA borrowing programme and Westpac to PNL and NAL
under intra-group funding arrangements.
O. Joining
the LGFA borrowing programme will enable IHL to access cheaper core debt on
behalf of PNL and NAL. As a “port company” under the Port
Companies Act 1988, PNL is not permitted to join LGFA and NAL does not have
the scale to make joining LGFA economical. It is considered that, once
implemented, the Financing Proposals will deliver considerable financial
benefits, including savings in financing costs for PNL and NAL and,
consequently, increased dividend return to Nelson City Council and Tasman District
Council (as the ultimate owners of PNL and NAL). Nelson City Council and
Tasman District Council through their Long Term Plan process and the JSC have
each received and reviewed advice from Deloitte about LGFA funding benefits.
P. PNL
and NAL will continue to require the flexibility offered by Westpac’s
transactional banking products. IHL will also enter into borrowing and risk
hedging facilities with Westpac for working capital requirements and
risk-management (such as interest-rate hedging).
The LGFA Accession and Westpac facilities
Q. LGFA
and Westpac will require certain credit support as conditions to the LGFA
Accession and the availability of the Westpac facilities. Such credit support
will include:
a) a
subscription from the Shareholders for an agreed amount of uncalled and
unpaid equity capital in IHL (further details are described below);
b) IHL,
PNL and NAL will each cross-guarantee each other’s obligations to LGFA,
Westpac as lender under borrowing facilities and Westpac as counter-party to
risk-management facilities (together, the Finance Parties); and
c) IHL,
PNL and NAL will each grant general security over all of their personal
property in favour of the Finance Parties. In the case of IHL, this
will include security over its right to call for uncalled and unpaid equity
capital.
R. As
mentioned above, it will be a condition to the LGFA Accession and the
availability of the Westpac facilities that the Shareholders subscribe for,
and IHL issues to the Shareholders (New Share Issue), a further 1,165,000
ordinary shares each (totalling 2,330,000 ordinary shares) in IHL (New Shares)
for an issue price of $100.00 per share. The total amount payable for the New
Shares will therefore be $233,000,000 (Issue Amount). The Issue Amount will
remain uncalled and unpaid until such time as the directors of IHL make a
call on the New Shares for the Issue Amount.
Shareholder
approvals
S. The
Restructuring Proposals and the Financing Proposals will require the approval
of the Shareholders as:
a) the
proposals are, or may be, “major transactions” (as defined in
section 129 of the Companies Act 1993 (Act));
b) the
Initial Share Issue and the New Share Issue require the agreement of
IHL’s entitled persons (as that term is defined in the Act) for the
purposes of section 107(2) of the Act. The only entitled persons of IHL will
be the Shareholders; and
c) Nelson
City Council and Tasman District Council (as the shareholders of IHL) must
consent, for the purposes of section 50 of the Act and for all other
purposes, to becoming the holder of the Initial Shares and the New Shares.
T. Accordingly,
IHL’s board of directors will, at the relevant times, separately
request that Tasman District Council and Nelson City Council (as shareholders
and entitled persons of IHL) confirm and approve IHL’s entry into,
execution and performance, of the:
a) Restructuring
Proposals (including the Initial Share Issue); and
b) Financing
Proposals (including the New Share Issue),
by separate unanimous resolutions and entitled
persons’ agreements. The unanimous resolutions and entitled
persons’ agreements for the Restructuring Proposals and the Financing
Proposals are together referred to as the “Unanimous Shareholder
Resolutions and Entitled Persons’ Agreements”.
Next steps
U. In
order to incorporate IHL and give effect to the Restructuring Proposals, the
Shareholders will need to:
a) register IHL as
a limited liability company on the New Zealand Companies Office and each
complete the Companies Office requirements in relation to the incorporation
of IHL (such as shareholder consent forms) (Companies Office Forms);
b) appoint
directors to the board of IHL (including an independent chairperson);
c) cause IHL to
adopt the constitution in the form attached (the Constitution);
d) enter into a
shareholders’ agreement (which will include the subscription provisions
for the Initial Shares) with IHL, in the form attached (the Shareholders’ Agreement);
e) enter into a sale and purchase agreement with IHL relating to the
transfer of shares in PNL and NAL in the form attached (the Sale and Purchase
Agreement);
f) execute and
deliver the share transfer forms (in the form attached) in relation to the
Sale and Purchase Agreement (the Share Transfer Forms); and
g) any other
documents necessary or desirable in connection with the Restructuring
Proposals.
The Companies Office Forms,
Shareholders’ Agreement, Sale and Purchase Agreement, Share Transfer
Forms and any other documents captured by paragraph U.g) above, are together
referred to as the “Restructuring Documents”, and the
transactions contemplated by the Restructuring Documents are referred to as
the “Restructuring Transactions”.
V. In
order to give effect to the Financing Proposals, each of the Shareholders
will need to enter into:
a) a subscription
agreement (in the form attached) with IHL, under which the Shareholders will
subscribe for the New Shares (Subscription Agreement);
b) (as part of the
LGFA Accession) accession deeds to the multi-issuer deed and notes
subscription agreement (which Tasman District Council and Nelson City Council
are each already a party to) (Accession Deeds); and
c) any
other documents necessary or desirable in connection with the
Financing Proposals.
The Subscription Agreement, the Accession
Deeds and any other documents captured by paragraph 0 are together referred
to as the “Financing Documents” and the transactions contemplated
by the Financing Documents are referred to as the “Financing
Transactions”.
Documents
W. The
Council tables the most recent drafts of the Restructuring Documents, the
Subscription Agreement and the Unanimous Shareholder Resolutions and
Entitled Persons’ Agreements.
X. The
Council has not tabled copies of the Accession Deeds because they are not yet
available for the Council to review and approve. However, the Accession
Deeds will be based on the standard form for accession deeds scheduled to the
LGFA Multi-Issuer Deed and Notes Subscription Agreement respectively.
That the Council resolves:
1. the
Council consents, for the purposes of section 50 of the Act and for all other
purposes, to being the joint owner in equal shares of the Initial Shares and
the New Shares;
2. the
form of the Constitution be approved, and the Shareholders will cause IHL to
adopt the Constitution;
3. the
Restructuring Documents and the Restructuring Transactions (including,
specifically, the Initial Share Issue) are approved, and any pre-emptive
rights available to the Shareholders in relation to the Share Sale are to be
waived in the Sale and Purchase Agreement;
4. the
Financing Documents and the Financing Transactions (including, specifically,
the New Share Issue) are approved;
5. the
forms of the Unanimous Shareholder Resolutions and Entitled Persons’
Agreements are approved;
6. the
Council enters into and, following execution, delivers and performs its
obligations under, each of the Restructuring Documents and the Financing Documents
and that these documents may be executed by:
a) (in
the case of agreements) the Chief Executive; and
b) (in
the case of deeds) two elected members,
on behalf of the Council, subject to any minor
amendments cleared by both Tasman District Council’s and Nelson City
Council’s legal advisors;
7. when
requested to do so by the board of IHL, the Chief Executive is authorised to
sign the Unanimous Shareholder Resolutions and Entitled Persons’
Agreements on behalf of the Council, subject to any minor amendments cleared
by both TDC’s and NCC’s legal advisors;
8. the
Chief Executive is authorised on behalf of the Council to, subject to
clearance by both Tasman District Council’s and Nelson City
Council’s legal advisors:
a) approve
any further minor amendments to the Restructuring Documents, the Financing
Documents and the Unanimous Shareholder Resolutions and Entitled
Persons’ Agreements prior to their execution; ands
b) enter
into, execute, and deliver such other agreements, instruments, notices,
communications, and other documents; and
c) do
such other things, in connection with the
Restructuring Documents and the Restructuring Transactions, the Financing
Documents and the Financing Transactions, and the Unanimous Shareholder
Resolutions and Entitled Persons’ Agreements, as the Chief Executive
may consider necessary.
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