This article communicates my considered opinion as to how expansion of the Napier Port could be achieved without close to 50 % of equity ownership potentially being transferred away from Hawke’s Bay stakeholders (Ref: the HB Regional Council Initial Public Offering – IPO).
I read with much interest – and was impressed by – the four well-contemplated and articulated mature views of respectively: Mark Peterson (Chief Executive for the NZX, Alan Pollard (Chief Executive of NZ apple & Pears), Anna Lorck (Havelock North businesswoman) and Fred Robinson (Hawke’s Bay resident) that were published in the Hawke’s Bay Today newspaper on 3rd November, 2018. These articles have in fact inspired me to prepare this post.
Like many Hawke’s Bay people, I fully understand the importance of the Napier Port to our regional economy, historically, now and into the future. For any business unit or region as a whole to grow, the right infrastructure to enable growth must firstly be put into place. Alan Pollard, in his article referred to above, has done a great job of providing insight into the projected growth of the Hawke’s Bay pip fruit sector alone. To gain a sense of the reality of these projections, one just has to take a drive up the Dartmoor Valley in the Puketapu district to see the phenomenal transformation of vast land areas into apple orchards that has taken place over the past 12 months.
It is clearly obvious and indisputable that increasing pressure on the capacity of the Napier Port is going to occur as a result of:
i) More cruise ship companies wanting to include Hawke’s Bay on their South Pacific docking schedules.
ii) Significant increases in the volumes of harvested fruit and pine trees needing to be shipped to export country destinations.
iii) Incremental increases in export volumes relating to other primary industry related businesses (e.g. meat); plus increases in export volumes relating to both existing manufacturing businesses and those that start-up in Hawke’s Bay going forward as a result of this region attracting more business people over the passage of time due to location cost comparative advantages and/ or for quality of life reasons.
Therefore, there should be no argument in respect of whether or not the Napier Port should be expanded in order to cater for this foreseeable increase in capacity demand; and in such a pursuit of expansion new more suitable technologies be introduced to achieve improved operating efficiencies. This simply must happen.
So the pivotal question rightfully being addressed currently is “how” is this expansion objective going to be afforded. I have been in a range of senior manager roles (e.g. CEO/ GM/ COO/ Regional Business Advisor) over the past 25 years, and one such role in particular taught me a valuable lesson about shareholder ownership of assets. That being, ultimately strategic direction of a company will (should) rightfully be determined by the expressed preferences of the majority of shareholders. At the end of the day Boards are appointed to act in the best interests of the shareholders who they represent – no more and no less. Any well-compiled Company Constitution will include such a mandate.
So, after the public consultation window of opportunity has closed, should the submitted views of those who have indeed come forward with their opinions reflect a majority who call for Hawke’s Bay people to retain by far a majority interest in the Napier Port, then I suggest that the following could be a commercially sensible way forward in order to afford the desired Napier Port transformations…
i) Ensure that a proven experienced governance body is in place to make objective and prudent governance decisions in respect of the Napier Port operation, into the future. If this means that the governance role transfers from the HB Regional Council to an independent Board – that is established specifically to perform this role, then so be it. On the other hand, it may be deemed that suitable governance is already in place. Whatever the case may be, the governance body must have qualifications, skills and experience to oversee the Napier Port operation where shareholder interest is a composite of both local shareholders and NZ Stock Exchange shareholders.
ii) Restructure Shareholder Equity so that 51 % is retained by the current amalgam of local shareholders, 25 % is owned by Unison and the remainder of 24 % is offered to shareholders via the NZ Stock Exchange. Why this proportioning ? This will ensure that by far the majority (at least 75 %) of Napier Port assets will be owned by locally based shareholders; and local shareholders – who are shareholders in both the Napier Port and Unison – have the potential to enjoy an overall increase in their dividend income (depending on the performance of both entities of course). Unison represents a robust, reliable/ stable large Hawke’s Bay company with shareholder interests comprising a large cross-section of Hawke’s Bay people – so many local people (representing a diverse range of demographics) stand to gain by Unison having a quarter shareholder interest in the Napier Port; rather than have this share parcel/ block target either a particular ethnicity group or collective of smaller entities (e.g. fruit exporter consortium/ cooperative).
And this level of local ownership should ensure that the governance Board involved:
i. Makes governance decisions and acts in accordance with the expressed preferences of the majority of “local” shareholders (current local shareholders and Unison combined) – being the majority shareholder group. The effect of local shareholder preferences on Board decisions – relative to the stated preferred position of NZX shareholders could be accentuated through the issue of “Preference Shares” (and corresponding voting rights) to local shareholders (only), versus NZX shareholders only ever having the opportunity to receive “Ordinary Shares”.
ii. Helps elevate performance standards across the Napier Port organisation, due to its decision-making process being strongly influenced by regulations that govern all NZX listed companies. Benefits for shareholders include enhanced financial reporting.
Going forward, if new share issues are to be contemplated in response to new/ additional investment capital requirements, such calls on capital should ensure that the above proportions of Shareholder Capital per stakeholder type (i.e. local shareholder/ Unison/ NZX shareholder) are retained.
So in summary, I think it is very healthy for desired growth in the Napier Port asset infrastructure to be fuelled in part by NZX investor capital (for the above reasons); yet the level of investment in total assets that this capital input represents should be restricted to around a quarter of total capital requirements. This would ensure that the vast majority of these assets indeed remain Hawke’s Bay owned into the future – if that is indeed what the majority want.
Well that’s my opinion for what it’s worth. I hope that other Hawke’s Bay people are taking the time to think about plausible options and come forward with their views. HB Regional Council has created the opportunity for this to happen; it is now up to our community to take-up this opportunity and choose to let our views be known…or not. When we put our views forward we help those in a decision-making capacity to form a balanced view and make well-informed decisions.