Four Christchurch City Holdings directors quit effective immediately
(left to right) Chris Day, Abby Foote (Chair), David Hunt, Martin Goldfinch
Four Christchurch City Holdings (CCHL) directors have resigned in a shock announcement tonight.
Independent directors Chris Day, Abby Foote (Chair), Martin Goldfinch, and David Hunt said that despite their best intentions and considerable effort, the relationship between the CCHL Board and the Council had broken down.
It follows calls by Councillors Jake McLellan and Melanie Coker for the board to resign after it proposed to remodel council assets, perceived by many as a step towards partial asset sales.
However, Chris Lynch Media has learned that councillors discussed the future of the board during a closed session held on Wednesday.
That evening, Councillor Kelly Barber told Chris Lynch Media “it’s very disappointing to say the least but as they say ‘let the chips fall where they may’.
“I’m only interested in working with those who want to move forward with Council to achieve the goals we’ve set as a council team.
In any corporate environment things change, those that have the flexibility to roll with that do so and those that don’t move on” Barber said.
When Melanie was asked for her comment by Chris Lynch, she responded "I would be keen to know how the media have this letter ahead of city councillors."
Councillor Jake McLellan said “ it’s no secret the board had lost the confidence of councillors. This is a result of their handling of the asset sales conversations and ongoing difficulty confirming dividend amounts.
“I'm glad to see the Board made the right call, but disappointed they're choosing to re-litigate decisions we've made as Council based on the clear public view that asset sales aren't acceptable.
I am looking forward to working with a Board focussed on growing the City's assets, not selling them. We need a CCHL board committed to a thriving Port, Airport, Enable and other infrastructure assets delivering for Canterbury - not equity markets.”
Councillor Victoria Henstock said “while I’m disappointed, there is a sense of inevitability about this given recent events. It is a loss for the city. It would be naive to expect talented independent governance professionals to remain in an environment, they feel compromises their professional integrity.”
Councillor James Gough said “the resignations are regrettable but not unexpected.
“Last year's council decision, passed by a narrow majority, to instruct CCHL to adopt the ‘enhanced status quo’ structure, against the advice of the independent Northington's review and the CCHL board themselves was, in my opinion, ill-considered.
“I have been very open in my view that I felt this directive overlooked critical commercial realities in favour of doubling down on ideology - pressing for an operational model that the experts did not recommend, essentially directed CCHL to "sweat the assets."
“Such a strategy not only undermines the financial health and integrity of our city's key infrastructure assets, but also places undue strain on the portfolio and their potential to deliver value to the community over time.
“I suspect it will impair both their short-term capabilities and longer-term strategic goals. Given this backdrop, the decision of some directors to resign isn’t something that surprises me” Gough said.
Last week, on Chris Lynch Media, Christchurch Mayor Phil Mauger said he had every confidence in the Board.
In the statement the directors said: “We respect and support the right of Council to make decisions around CCHL and its group of infrastructure businesses.
“This includes the Council’s decision not to accept the CCHL Board’s recommendation in December 2023 to move to an active portfolio management model to support investment in the region’s infrastructure, reduce debt levels, and grow dividends,” they said.
“We agreed to instead work to lift dividends as far as possible within the current CCHL mandate, recognising Council’s view that there would be no more capital for the group in the form of either debt or equity.
“However, Council has since made requests for dividends beyond what CCHL’s infrastructure businesses can sustainably provide. Delivering these dividends may require further borrowing and assuming future councils will accept lower dividends, both of which pose risks for the CCHL Group.”
In light of these issues, the four independent directors tendered their resignations, effective immediately.
In a letter to Mayor Phil Mauger, Chair Abby Foote said, “We do not believe we can meet our duties as directors to CCHL or the subsidiary companies with the current demands that Council is making. We also cannot support the processes that have characterised the way this Council increasingly operates as a business owner.
“On February 28, Council issued CCHL a new Letter of Expectation requesting maximised dividends and prioritising income over capital investment in its subsidiary companies for the three-year Statement of Intent (SOI) period. It also directed that no new capital would be available to the CCHL Group through either debt or equity.
“In response, CCHL presented its draft SOI, outlining how it would seek to balance these conflicting expectations. At that session, CCHL highlighted the challenge of delivering more dividends while addressing the tensions identified through the Strategic Review: paying down debt, growing dividends, and investing in strategic infrastructure.
“Subsequently, Council passed a new resolution requesting CCHL deliver revised dividend projections far exceeding those under the Active Portfolio Manager model rejected by Council. These new expectations required careful consideration and articulation of the compromises and risks involved.
“We believe the Council’s request to prioritise and maximise dividends over the capital needs of our subsidiary companies and Group debt represents a risk appetite that we do not share. This is where the relationship between Council and the independent directors has broken down.
“The four CCHL independent directors acknowledge Council as the ultimate owner of the city’s assets and responsible for setting CCHL’s future direction. However, we believe Council’s decisions have created an environment inconsistent with good governance and responsible infrastructure ownership.
“Thank you for the opportunity to have served the people of Christchurch,” she said.
READ FULL LETTER:
15 May 2024
Phil Mauger
Mayor
Christchurch City Council
Via email: phil.mauger@ccc.govt.nz
Resignation of four independent directors of Christchurch City Holdings Limited
Kia ora Mayor Mauger
It is with sadness, disappointment and regret that four of the independent directors of CCHL,
including me, today tender our resignation from the CCHL Board. These resignations are effective
immediately.
Attached to this email is my signed letter of resignation. You will already have or will soon receive
those from Chris Day, Martin Goldfinch and David Hunt.
This letter from me is on behalf of the four of us and provides the rationale for our decisions. I ask that
this letter be read alongside the detailed email on a range of financial matters from interim CCHL
chief executive Paul Silk to the Council’s Acting CFO on 13 May 2024.
Despite the very best of intentions and considerable effort, it is the view of the four independent
directors that the relationship between the CCHL Board and the Council – including current
management – has broken down.
We respect and support the right of Council to make decisions around the city’s assets. This includes
its decision not to accept the CCHL Board’s recommendation in December 2023 to move to an
active portfolio management model in order to invest in our region’s assets, pay down debt and
grow dividends.
However, the decisions Council has subsequently taken over 2024 to maximise short-term dividends
at the expense of paying down Group debts and investing in the future of its companies has caused
us to lose confidence in Council’s ability to responsibly own core strategic infrastructure.
We do not believe we can meet our duties as directors to CCHL or the subsidiary companies in our
care with the current demands that Council is making of CCHL. We also cannot support the
processes that have characterised the way this Council increasingly operates as a business owner.
Background
I want to set out for the record how these resignations have come to pass.
As you know, in December 2022, Council requested CCHL develop a detailed business case to
consider the costs and benefits of adopting a more active approach to managing its portfolio of
investments. This work was to be considered as part of the draft Long-Term Plan for 2024-2034.
Council also resolved to maintain CCHL as an independent and non-political buffer between
Council and its commercial companies, clarifying that CCHL’s core role and purpose is to deliver
commercial-based outcomes for its shareholder.
Council then established an independent committee to make recommendations to Council on
appointments to the Board of CCHL. The independent appointment committee was led by Mary
Devine and included Mark Cahill as a Council-nominated member and Henrietta Carroll,
representing Ngāi Tahu. The Council’s chief executive was an independent advisor to the
Committee. The independent committee developed a skills matrix to reflect the change in Council’s
expectations for CCHL, with a focus on commercial performance, investment portfolio
management, financial experience, stakeholder relations, strategy and people leadership.
Following my appointment as Chair by unanimous resolution of the Council, I joined the Appointment
Committee. The Council subsequently approved the appointments of Gill Cox, Chris Day, David
Hunt, Bridget Giesen, and Martin Goldfinch to the CCHL Board.
Strategic Review
One of the priorities for the new Board was Council’s request to undertake a Strategic Review into
CCHL.
The CCHL Board appointed KPMG and Mafic as external advisors and commissioned detailed
investment reviews at a portfolio and subsidiary level. This was the first time this detailed analysis has
ever been undertaken by CCHL. It was important, worthwhile, and timely work.
The purpose of these reviews was to fully understand and highlight any need for a change in the
way CCHL managed the Group to achieve Council’s ownership objectives. The work generated
clear, independent conclusions: a more active ownership approach was needed in order for CCHL
to lift subsidiary performance, improve dividends to Council, and improve stakeholder engagement.
A critical input into the Strategic Review was Council’s ‘Value Strategy’, developed by Council in
parallel to to the review. This Value Strategy identified the following four Council investment
objectives:
• For the benefit of current and future generations
• Supporting the sustainable growth of Christchurch and Canterbury through resilient
infrastructure
• Delivering real growth in dividends
• Balanced risk appetite.
The desire to adopt these investment objectives on an enduring basis was reinforced in your Letter
of Expectation to CCHL in February 2024. Unfortunately, we believe Council’s actions since have
been inconsistent with its own investment objectives.
Active Portfolio Manager Model, enhanced Status Quo
Ultimately the Strategic Review highlighted multiple competing objectives and challenges:
significant capital constraints at a time when subsidiary companies need capital for growth; $2.3
billion in Group debt that is increasingly expensive to service and which is not being paid down as
per the agreements of previous councils; the ever-present financial challenges facing Council and
its desire for higher dividends to offset rating pressure.
The CCHL recommendation to Council was to allow CCHL to operate as an active portfolio
manager to deliver against these competing objectives. Our recommendation would have lifted
dividend flow to Council by $450 million over the next 10-years and largely removed dividend
volatility. It would have enabled debt to be paid down and for capital to be invested in the city’s
assets to ensure they were competitive, growing and resilient. Eighty-five per cent of the portfolio
would have remained invested in infrastructure assets.
It is important to stress that while politically convenient slogans around ‘asset sales’ came to
mischaracterise the proposal, CCHL was committed to growing the value of the city’s pool of assets.
Regardless, CCHL accepted the Council’s vote not to proceed with this option and began
immediately to work out how to deliver more within its current mandate under what became known
as the ‘Enhanced Status Quo’ model.
As the Council’s draft LTP was being developed, it became clear that this option was not going to
be sufficient to meet Council’s desire for greater certainty of much higher dividends, cater for the
capital needs of the wider CCHL Group, and enable debt retirement.
Implementation of the Enhanced Status Quo option
In the period since December 2023, the CCHL Board and management team have been focused
on implementing the shift in operating model. This work has had three principal areas of focus:
governance and leadership, capital management, and impact.
A great deal of work has been undertaken to effectively communicate Council’s objectives into our
subsidiary companies, as well as more regularly ensuring Council has greater visibility of their assets.
Detailed financial reviews have been completed, capital structures reviewed, a responsible
investment framework introduced and work has started on jointly developing a sustainable dividend
policy.
An impact committee has been created, focus has been placed on climate-related initiatives
across the Group and strategic interventions have been required to align some subsidiary work
programmes with Council’s expectations.
While the CCHL Board has had to bring Council’s attention to a challenging financial outlook around
its subsidiary companies, debt position, and forecast dividend flow, we have worked constantly to
try and deliver as much as possible under the current CCHL mandate and new operating model.
Dividend request
On February 28, Council issued CCHL with a new Letter of Expectation which included a request to
maximise dividends and prioritise income over capital investment in its subsidiary companies,
particularly through the three-year Statement of Intent (SOI) period.
It also included direction to assume no new capital would be available to the CCHL Group, through
either debt or equity.
In response to this, CCHL presented its draft SOI, outlining how it would seek to balance these
conflicting expectations.
At that session, CCHL spoke to the challenge of delivering more dividends, referencing the tensions
identified through the Strategic Review: paying down debt, growing dividends, and investing in the
resilience and growth of strategic infrastructure.
CCHL outlined the risk of a push to maximise dividends to the long-term financial sustainability of the
infrastructure assets owned by the Group and the challenge this presented to CCHL’s obligations as
a responsible long-term owner of this infrastructure.
The CCHL board was duty-bound to make these observations.
Subsequently, Council passed a new resolution requesting CCHL deliver a revised dividend
projection providing dividends of $55 million in FY24/25; $65 million in FY25/26, and $65 million in
FY26/27. These dividend forecasts far exceed those projected under the Active Portfolio Manager
model rejected by Council, as well as the Enhanced Status Quo model.
These dividend expectations are not an extension of Council’s preferred CCHL operating model.
Rather, this is a brand-new request for materially higher dividends. As such, it required careful
consideration and a clear articulation of the compromises to be made and risks to be taken in
meeting the request.
This request to prioritise and maximise dividends to Council over the capital needs of our subsidiary
companies and the level of Group debt represents a risk appetite within Council that the four
independent directors do not share.
This is where the relationship between Council and these independent directors has broken down.
We are concerned that at least some apparent basis for this dividend request relies on advice to
Council from one individual that was informal and not tested in a robust process. That source may
believe that the subsidiary companies are performing well, that debt levels are acceptable, and
that Council’s dividend requests can be met, but the four independent directors do not share those
views.
Paul Silk’s email to Council’s Acting CFO of 13 May documents some important financial
discrepancies between the Council meeting minutes of the presentation of that advice to Council,
and the Group’s financial circumstances.
The relationship between Council and the four independent directors has become strained over our
differing risk appetites. While we have tried hard to reset the relationship and to work together in
service of our common goals – delivering value for the people of Christchurch – our differing
approach to risk, commitment to investment in our subsidiary companies, and comfort levels with
debt are now too far apart.
Conclusion
The four CCHL independent directors acknowledge Council is the ultimate owner of the city’s assets.
It also sets the future direction of CCHL.
However, with this position comes responsibility that we do not feel is being appropriately exercised
by Council.
Council has created an ownership environment that we believe has irreconcilable objectives for
CCHL. We believe its decisions have created an environment inconsistent with the principles of good
governance and responsible infrastructure ownership.
Thank you for the opportunity to have served the people of Christchurch.
Abby Foote
