15 Dec 2022

It was just a suggestion, Wayne Brown says, after trading in Auckland Airport's shares disrupted

10:30 pm on 15 December 2022
AUCKLAND, NEW ZEALAND - OCTOBER 21: Auckland Mayor, Wayne Brown and Deputy Prime Minister of New Zealand, Grant Robertson are seen during a traditional welcome ceremony ahead of the FIFA Women's World Cup 2023 Final Tournament Draw at Karanga Plaza on October 21, 2022 in Auckland, New Zealand. (Photo by Robert Cianflone/Getty Images)

Photo: Getty Images / Robert Cianflone

In the last meeting of Auckland Council this year, mayor Wayne Brown said he wished he could be giving councillors a Christmas present.

Instead, he delivered a shock by suggesting the council's shares in Auckland airport would be further diluted because the council would not be contributing to the airport's planned fundraising for a second domestic airport terminal.

Trading in Auckland International Airport shares was brought to a standstill, after the mayor's comments.

Mark Lister from Craig's Investment Partners told Checkpoint it was not ideal that Brown's comments disrupted the market, but no real harm was done.

"I think it will be forgotten soon enough - it's a faux pas isn't it."

Auckland Council had met earlier in the day, trying to plug its $295 million budget shortfall, which the mayor said had increased by $25m since his appointment.

A key focus of the meeting was the mayor's proposal for the 2023/2024 annual budget.

Brown's proposal was aimed at tackling major costs to council, including a targeted seven percent rates increase, $25m of operating savings for Auckland Transport, and potentially selling the council's 18 percent share in Auckland Airport.

Councillors agreed to open up consultation on the budget plan - with just one voting against - councillor Josephine Bartley.

Where the $295m budget shortfall will come from:

  • A rates-rise across the region, averaging 4.66 percent (raising about $71m)
  • Cuts and savings at Auckland Transport ($25m), Auckland's economic and cultural agency Tātaki Auckland ($27.5m), Auckland Council ($44m), local boards ($16m), and urban regeneration team Eke Panuku ($5m)
  • Cuts and savings still to be found by the Expenditure Control and Procurement Committee ($12.5m)
  • Selling Auckland Airport shares (net gain estimated at $48m, from an $88m cost to hold the shares minus about $40m in estimated annual dividends)
  • Ports of Auckland dividend for 2023/24 (expected $10m)
  • Borrowing (about $36m expected to be drawn, with the ability to draw up to $75m)

Brown said prudent behaviour was essential when managing the council's finances.

"We've been borrowing increasing amounts for many years, and you cannot borrow your way to wealth," he said.

"Councillors and I now look forward to hearing what Aucklanders, the CCOs [Council Controlled Organisations] and the port company have to say, before finalising the budget and Statements of Intent before the end of June," Brown said.

Mayor's Auckland Airport shares mention sends market 'into a spin'

Mid-meeting, Brown turned heads by unexpectedly mentioning the potential for the new domestic terminal.

Auckland Council would not contribute to the development, which would lead to more diluted shares, he said.

"Dilution is almost inevitable, they're about to go through a major raising to fund a new domestic airport, and we will not be contributing to that so our 18 percent will soon become 11 or 10, so at that stage it becomes less and less and less strategic."

This claim was quickly questioned by councillor Chris Darby, who wanted to know where the new terminal had been announced.

Brown responded, saying council did not need to be "particularly forward looking" to see the announcement was coming.

The new information sent the markets into a spin, with the NZX announcing trading was to be halted on shares of Auckland International Airport.

Acting quickly, a spokesperson for the mayor said Brown was merely speculating on how the airport might finance its ambitious capital expenditure programme.

Auckland Airport was forced to quickly explain it had no plans to carry out an equity raise and no announcement to make.

Auckland Airport

Auckland International Airport. Photo: 123rf

Brown defends stance

Speaking to media later, an irritated mayor attempted to explain his comments.

"Any informed person can make a suggestion, I didn't make a statement on behalf of anything. I'm just a person who looks out there and says what I think," he said.

Raising his voice, the mayor made a point of saying he had been accurate on the subject in the past. Throughout his campaign, suggestions he had made about rising interest rates and inflation were right, despite media questioning his comments.

Brown and councillors get their chance to debate the issue further next year, after his proposal was approved for consultation.

Aucklanders will now get the chance to have their say on the proposal, which includes a potential rates rise of 4.6 percent.

The mayor said the council's focus should be on selling the airport shares, which have not returned anything in three years.

Mayor needs to take more care - investment specialist

An investment specialist said Auckland's mayor would need to choose his words more carefully in the future.

Mark Lister from Craig's Investment Partners said the issue was that Auckland Airport was a publicly listed company, which meant there were very tight regulations on disclosing any information the public might not know.

The NZX had to act on a precautionary basis because Auckland Council was a major shareholder in the airport - so Brown could have been privy to some details not yet in the public arena.

"Their hands would have been tied and they needed to halt trading until there was a bit of clarity out there ....no real harm [was] done at the end of it but it's probably not great that they've had to disrupt the market like that . I think he [Brown] might have to choose his words a bit more carefully next time."

Lister said Brown had some important things to say and he would be disappointed the halting of trading became the focus of the day.

The fact that Brown was specific - saying the council's share would be diluted from 18 percent to 10-11 percent - would have alerted the NZX's interest.

There was no talk in the market of a big capital raising for the airport on the horizon. It had already happened when the pandemic started.

"They're pretty well capitalised and they've got debt available to them to do all the things they need to do ... Why the mayor has been quite specific in terms of those numbers I couldn't tell you."

The mayor has refused to apologise, however, it would have caused some inconvenience to airport management and PR teams as well as the NZX and traders, Lister said.

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