Coming right after the electrifying ‘Affixing of Common Seal” discussion, in what was almost a ‘footnote’ Agenda item at the last HB Regional Council meeting (June 25), Councillors approved the Statement of Intent 2025-2026 (SOI) of its investment arm, HB Regional Investment Company (HBRIC).
The SOI is the formal agreement setting out what the Council expects of its investment unit and where HBRIC indicates how it will deliver and any material issues affecting the context in which it will do so.
Since drafts of the SOI had already gone back and forth between the parties, the only change of note was presented in the Agenda paper as follows:
“HBRIC directors agreed that the issue raised by Council, namely that of overall HBRIC and Group portfolio risk arising from the requirement to maintain a majority stake in Napier Port, should be included in the SOI.”
So HBRIC proposed this addition to the SOI section titled ‘Our Operating Environment’:
“HBRIC’s investment portfolio remains heavily concentrated in Napier Port, which represents the largest single asset by value and revenue contribution. As of the date of this Statement of Intent, Napier Port accounts for approximately 80% of HBRIC’s total portfolio value and a significant proportion of HBRIC’s annual cash distributions to Council. While this investment has provided historically stable returns, its dominance within the portfolio creates specific concentration risk that could impact HBRIC’s ability to meet Council’s long-term financial objectives. Risks include exposure to sectoral and operational factors unique to the port industry, as well as external events such as natural disasters, supply chain disruptions, and evolving regulatory frameworks.”
Cutting to the chase, this acknowledges that both parties – the 55% shareholding Regional Council and its investment arm HBRIC – understand that the current Port shareholding is not smart from either a risk management perspective or in terms of optimising revenue to HBRC (and its ratepayers) from its investment portfolio.
At the end of 2024, HBRIC’s 55% shareholding in the Port was valued at $282.7 million, about 56% of a total HBRC/HBRIC portfolio valued at $502.341 million.
What HBRIC’s astute commercial directors see (and understand as their duty to address) is that the HBRIC/HBRC shareholding must be re-considered. HBRC has recently reviewed its overall financial strategy with the expectation of improving investment returns across its portfolio. That review highlights that the Port returns less than other (and more liquid) financial investments. At a time when HBRC faces huge future costs related to mitigating flood risk, which cannot be afforded by ratepayers, the Council needs to earn as much revenue from its investments as it prudently can.
Moreover, the Port is exposed to the significant external risks identified in the SOI amendment.
The idea of selling down a significant percentage of Port shares (at present HBRC is authorised to drop only from 55% ownership to 52%) will undoubtedly be regarded as heretical amongst many in the Hawke’s Bay’s populace, who regard Napier Port as the community’s crown jewel. At the time of the public listing of the Port, to ensure political ‘permission’ much was made of the HBRC (i.e., public) retaining majority ownership.
The deal as structured was good for the Port and the people … then.
But with HBRC already – like all other councils – facing ratepayer revolt, it seems perfectly reasonable — in fact imperative — for the Council to look at other and better revenue options that can relieve ratepayers of unaffordable future burdens. Or do we want to take a pass on flood protection?
Prudent risk management mandates diversification. Should concentrated (and low return) Port ownership be treated any differently?
Nothing on this front will occur overnight. Heaps of analysis and public ‘socialisation’ ahead. But keep your radar tuned, it is coming.
