The Downward spiral of the New Zealand economy - 08/13/2015

$128m down the Solid Energy gurgler

The taxpayer will not get back the millions of dollars it poured into Solid Energy, Finance Minister Bill English says.

Photo: RNZ / Conan Young

Radio NZ.,

13 August, 2015

The State-owned coal miner has been put into voluntary administration so it can keep trading for the next two-and-a-half years.

During that time it will see which assets are profitable and can be old.

Mr English said it was no secret that Solid Energy had faced significant financial hurdles - both from the falling international coal price and its debt burden.

"Any taxpayer value in the company has gone, and the voluntary administration is fundamentally about the ability of the company to keep trading, which is secured and the banks recovering some of their debt from the asset."

Finance Minister Bill English.   Photo: RNZ / Chris Bramwell

Mr English said the banks were taking a hit and the Government would also not get back any of the $128 million it put into Solid Energy.

"The Government is not in line to recover anything from the sale of the assets, the banks and other creditors as appropriate would be ahead of us."

Labour state-owned enterprises spokesperson Clayton Cosgrove said it was positive workers had some job security for the next couple of years.

"However, the truth is we are where we are because Government ministers failed to react when the coal price moved south - they sat there and they did nothing.

"Other coal companies around the world reacted within days and have survived and are producing and are profitable."

Mr Cosgrove said Solid Energy's woes were not just about the price of coal bottoming out.

"Any fool in that Beehive could have read in the paper that the coal price was heading south back in 2010.

"They should have called in the board and [asked] 'what is plan B', if the board then failed to react, they should have been sacked or they should have changed the statement of corporate intent and directed them."

Green Party Energy spokesperson Gareth Hughes said Prime Minister John Key promised no more asset sales but said it looked like that was exactly what was planned for Solid Energy.

"Well, it looks like we could quite well see parts of Solid Energy been sold off, this could mean equipment is sent overseas to cheaper low-cost mining countries.

"It could mean equipment is moth-balled for potentially decades as we wait for the coal price to increase."

Mr Hughes said the Government needed to come up with economic development and employment strategies for places like the West Coast.

Miners relieved with Solid Energy move

Negative creditwatch for Fonterra

A global credit ratings agency has placed Fonterra on negative creditwatch, citing weakening market conditions.

Radio NZ.,

13 August, 2015

Standard & Poor's said the creditwatch placement reflected its concerns regarding potential weakness in the dairy co-operative's finances given its high debt levels, which came at a low point in the global milk price cycle.

It said the move followed the lower forecast milk price announced by Fonterra last week due to weak demand and surplus supply in the global dairy market.

S&P said Fonterra's debt was at high levels due to a large acquisition and peak capital expenditure, placing downward pressure on its finances.

S&P has placed the co-operative's "A" long-term and "A-1" short-term ratings and its associated debt issues on CreditWatch with negative implications.

Fonterra has responded to the agency's announcement, saying it has taken proactive and positive steps to maintain the financial strength of the co-operative.

"We have continued to exercise financial prudence and discipline in challenging times for dairy globally," chief financial officer Lukas Paravicini said.

The measures included significantly reducing capital expenditure, and that it is now targeting a spend of $500 million in the 2016 financial year, which is $600 million less compared to the 2015 financial year.

Fonterra had set a prudent advance rate payment to its farmers for the current season given the ongoing volatility of global dairy prices, and the company was progressing well with its business transformation, he said.

The measures reinforced Fonterra's sound financial position "and are enabling us to provide support to our farmers during this difficult period of low global dairy prices".

Mr Paravicini said Fonterra's current debt levels were in line with expectations.

"While current global prices are unsustainably low, we take a longer term view of the cyclical nature of the international dairy market and have confidence in the fundamentals for dairy."

Fonterra cut leaves a $3.3b hole in the economy