Capital return causes POA rating cut

By Phil Boeyen, ShareChat Business News Editor

Monday 3rd December 2001

Ratings agency Standard & Poor's has dropped Ports of Auckland's (NZSE: POA) credit rating in light of a proposed debt-funded capital return to shareholders of $132 million.

The port company's rating has been lowered to A from AA-, with the short-term rating at A-1 from A-1+. The ratings have been removed from CreditWatch with negative implications and the outlook is stable.

S&P says the main reason for the downgrade is the substantial change expected in the financial profile of the company after the scheduled capital returns to the shareholders next year.

"The capital return will be debt-funded and will increase the company's total debt to about $190 million by June 2002 compared with $40 million in fiscal 2001.

"Furthermore, there is a planned total capital expenditure of $200 million until fiscal 2006 for channel dredging and expansion of the container terminal. Consequently, all the cash flow protection measures will weaken in the medium term, although they will still remain strong."

The ratings agency says the increasing competition for container trade is a credit issue, but the port's solid service area, its broad base of shipping services, and flexibility on the tariff structure should enable it to protect its market share.

"Although Port of Tauranga Limited has been successful in attracting a few shipping services and container volumes away from POA, incremental losses are expected to be marginal."

POA chief, Geoff Vazey, says following the capital restructuring total interest-bearing debt to debt plus equity will be around 50%, which is still considered to be a conservative gearing level for the company.

"The company can return capital to shareholders and increase its level of debt without affecting its ability to undertake new investment or causing any form of financial stress.

"Rather, the return of capital will likely encourage efficiencies in our operations and discourage investment in projects that do not fit our strategic direction or bring less than adequate returns."

Mr Vazey says the company remains in a very sound financial position.

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