Solid Energy's secret bondholders

Bonds

Beleaguered SOE Solid Energy won't say who holds NZ$95 million worth of its debt

2nd Apr 13, 4:09pm by Gareth Vaughan

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

By Gareth Vaughan

Troubled state owned enterprise Solid Energy is refusing to disclose the names of the holders of NZ$95 million of its debt.

The company, which has around NZ$389 million of debt in total and whose bankers are in talks with the Government over restructuring options, has told interest.co.nz in a response to an Official Information Act request that it will not name its bondholders. Nor will it disclose the interest rates it's paying on them, or details of the bond's covenants.

The company has issued three medium term notes to wholesale investors worth a combined NZ$95 million, with the third and final issue taking place as recently as last November.

"Solid Energy does not agree to release the names of the holders, the interest rates for each of the notes or the details of the covenants contained in the notes. This information is commercially sensitive," Solid Energy says in a letter signed by its senior solicitor Rob Page.

Page maintains this commercial sensitivity outweighs the public interest. However, interest.co.nz has written to the Ombudsman requesting a review of Solid Energy's decision to withhold the names of the bondholders, the interest rates Solid Energy is paying them, and the covenants (loan conditions) of these bonds. Given Solid Energy is an SOE likely to require a taxpayer funded bailout, we do not agree that commercial sensitivities, whatever these may be, outweigh the public's right to know.

The balance of Solid Energy's debt is held by banks whose names Solid Energy has been prepared to disclose. They are ANZ, ASB, BNZ, Westpac and Bank of Tokyo-Mitsubishi.

Solid Energy's letter points out its notes are unlisted, unsubordinated and unsecured. It says the first note was issued in December 2009 raising NZ$20 million, the second in March 2011 raising NZ$50 million, and the third in November 2012 raising NZ$25 million.

"The maturity dates for each of the notes is 7 December 2016, 29 March 2018 and 12 November 2019 respectively," Page says. "The monies raised have been used for general operational purposes."

Solid Energy's 2012 annual report, covering the year to June 30, showed total debt at that point of NZ$295 million comprising NZ$225 million of bank debt and NZ$70 million of bonds. It said all bond and loan facilities were unsecured and all the debt was marked as non-current, meaning none of it was due for repayment for at least 12 months.

Finance Minister Bill English and Minister for State Owned Enterprises Tony Ryall revealed the seriousness of Solid Energy's plight in February, just weeks after the company's CEO of 12 years, Don Elder, departed the company. Elder, however, continues to be paid for providing advice to the company. Prime Minister John Key has said his government won't be letting Solid Energy's banks off Scott-free and they will "definitely" have to wear some losses.

This article was first published in our email for paid subscribers. See here for more details and to subscribe.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

15 Comments

by Kate | 2nd Apr 13, 4:22pm 1364872957

Can an SOE not go into voluntary liquidation?

What are we waiting for?

by Andrewj | 2nd Apr 13, 4:40pm 1364874014

Why would a company in such trouble, pay such huge dividends to the govt? If I was a bond holder Id want a inquiry.

by Andrewj | 2nd Apr 13, 5:43pm 1364877786

could be ACC, our pensions?

by Gareth Vaughan | 4th Apr 13, 10:07am 1365023228

An ACC spokeswoman has told me ACC doesn't have any Solid Energy bonds.

by Christov | 4th Apr 13, 10:27am 1365024452

Maybe the Energy ministry has a few lying around they could give them by accident.

by Andrewj | 2nd Apr 13, 6:08pm 1364879305

http://www.southparkstudios.com/clips/222624/the-importance-of-saving-m…

by Wolly | 2nd Apr 13, 7:28pm 1364884133

Surely Soiled Energy was bound by law to inform potential bond buyers of the accurate state of the SOE.......did they?

by Hevi Groswaite | 3rd Apr 13, 8:12am 1364929968

This commentary is not relevant to this article, but I think many would like to read it. Here is David Kotok of Cumberland Advisors with comments regarding NZ OBR policy in the context of the Cyprus debacle:

"Markets are also looking at New Zealand, which is proposing a bank reconciliation mechanism similar to the one applied by the Eurozone in Cyprus. It is called Open Bank Resolution (OBR). Google it and read about the debate in New Zealand. We suspect that monies that are able to leave New Zealand are already doing so."

"If I had money in a New Zealand bank and if I had seen a proposal indicating that a governmental authority or the central bank might confiscate some portion of my account if they had to resolve one of New Zealand’s banks, I would be thinking about moving it right now."

"How does one protect oneself? In New Zealand one needs to avoid exposure to banks!"(Emphasis is mine.)

HGW

by Christov | 3rd Apr 13, 8:47am 1364932036

This Gareth is the charter Statement of the SOE disclosure site....I'm sure it will raise the ire of many here.

All state-owned enterprises and Television New Zealand Ltd have obligations under the SOE Continuous Disclosure Rules: to keep the public informed on matters that may have a material effect on their commercial value.

http://www.comu.govt.nz/announcements/soe-disclosures/

That would I take it, include indebtedness to parties who may seek restitution through other Tax Payer owned enterprise.

The knock on effect.

by Jandel | 3rd Apr 13, 10:06am 1364936814

Gareth, what about s52(3) of the Securities Act? Under that section an 'Issuer" is required to provide a copy of the register to any person who asks (don't need to be a bondholder). The only wrinkle is whether Solid Energy is an issuer, given there may not be any retail investors?

by Gareth Vaughan | 3rd Apr 13, 10:24am 1364937889

Interesting point Jandel. But I'd be very surprised if any retail investors were even offered these bonds...

by Muppet King | 3rd Apr 13, 11:04am 1364940263

Gareth, I think its time you did an article on bitcoin. Gone from $3 to $130 in less than a year.

by Christov | 3rd Apr 13, 11:50am 1364943000

It may be with good reason non disclosure of the 95 mill bond holders is in effect.

Billy bob may have some leftover breakfast hanging around his dummy.

State Owned Enterprises (SOEs) (D2, Dd) The State Owned Enterprises are required to operate on the basis of principles and procedures in the State Owned Enterprises Act 1986. Under the Act, the Boards of SOEs have complete autonomy on operational matters, such as how resources are used, pricing and marketing of output. Under the Act, SOEs have no responsibility for continuing non-commercial operations and the Government is required to negotiate an explicit contract if it wishes an SOE to carry out such activities. Boards of directors drawn from the private sector have been formed to manage SOEs. Each Board is required to present to the shareholding ministers a statement of corporate intent and an outline of business objectives, defining the nature and scope of activities and performance targets. These are closely monitored and SOEs are expected to achieve performance targets and pay dividends on a basis comparable to their private sector competitors. The shareholding ministers may determine the levels of the dividends. The SOEs borrow in their own names and on their own credit, in most cases without a guarantee or other form of credit support from the Government. SOEs have been informed that Government policy requires that they disclaim in loan documentation the existence of such guarantees or credit supports. Formation and ownership of new State enterprises 10Ministers may hold shares and equity bonds in new State enterprises (1)The Minister of Finance and the responsible Minister may from time to time, on behalf of the Crown, subscribe for or otherwise acquire shares or equity bonds, or both, in the companies named, or to be formed with the names specified, in Schedule 2. (2)The number of shares, and the number of equity bonds, held by a shareholding Minister in a company named in Schedule 2 shall be the same as the number of shares or equity bonds, as the case may be, in that company held by the other shareholding Minister thereof. (3)Any money required to be paid by a shareholding Minister on subscribing for or otherwise acquiring shares or equity bonds pursuant to subsection (1) shall be paid out of money appropriated by Parliament for the purpose. Section 10: substituted (with effect on 1 April 1987), on 1 July 1987, by section 3 of the State-Owned Enterprises Amendment Act 1987 (1987 No 117).

by Christov | 3rd Apr 13, 3:39pm 1364956781

Well I thought it was an excellent thread Gareth and thank's for writing to the ombudsman on our behalf......

Under the 1986 Act there are provisions for just what you are suggesting , in that the public interest outwieghs the commercial sensitivity given that the public are being invited to puchase shares in an SOE (related) without being in posession of pertinent information that may give cause to re-evaluate the value of their potential investment.

I point out yet again the first charter of SOE disclosure.

Just because their man says non disclosure does not make it so.....of course the probability of the taxpayer holding the 95mill is high.......just as the ventures of Solid Energy were required to have had explicit involvment from the Ministry.

by Gareth Vaughan | 3rd Apr 13, 4:23pm 1364959395

Cheers Christov, and thanks for your contributions.