By Edward Miller*
Christchurch City Holdings Limited is currently weighing an unsolicited bid from Tōnui, a consortium of global port giant DP World and three Ngāi Tahu Rūnanga, to operate and develop Lyttelton Port.
The rūnanga oppose further reclamation in Whakaraupō and their proposal may end up looking quite different to CCHL’s existing plans for a $800 million 380m deepwater port, but Tōnui spokesperson Liz Brown described the proposal as “a practical alternative to the challenge of funding the next phase of port investment entirely through CCHL, Lyttelton Port Company and, ultimately, ratepayers”.
Many will feel uncomfortable about the idea of surrendering operational control of a strategic asset like the South Island’s largest port to a foreign multinational (let alone one owned by another Government, Dubai's) but if the deal adds up it’s worth considering, right?
Elsewhere, Rāpaki Tangata Tiaka Chair Tutehounuku Korako has described the proposal as “due diligence”, which is a useful standard for consideration. Tōnui’s proposal may present good ideas that CCHL can adopt, but we still need to assess whether the financials stack up.
We can get an idea of this through a hypothetical like-for-like comparison, looking at finance costs and return on equity expectations of the respective projects.
Given CCHL was already contemplating an $800 million investment plan, let’s call it a billion over 30 years (five years to build and 25 to repay); what would it cost Canterbury if a private operator like DP World ran the port and delivered this expansion instead of CCHL?
On those assumptions, a DP World-backed proposal appears to impose more than $1 billion of additional cost over 30 years, an extra $37 million a year.
Undertaking the same comparison with a smaller price tag actually increases the extraction premium between the projects, with $500 million investment programme costing another $903 million to deliver with a private investor like DP World.
Other benefits may offset these costs, but this analysis suggests that they would have to be significant to make a DP World-backed bid more attractive.
Finance costs
CCHL’s long-term issuer credit rating was recently reaffirmed at AA- with a stable outlook. This is three notches above DP World’s BBB+ rating, and on a billion-dollar project those notches add up.
Let’s assume it takes a clean five years to build followed by a 25-year loan at 10% equity.
On a typical mortgage-like “amortising” loan, in which regular repayments that retire the debt over the loan term, CCHL’s AA- rate of 5.25% would incur finance costs of $737 million, while DP World’s BBB+ rate of 6.25% would push that to $852 million, another $115 million.
But DP World’s doesn’t use amortising loans. The latest Fitch ratings commentary flagged DP World’s use of “bullet” bonds, interest-only bonds where the full principal is repaid or refinanced at maturity rather than progressively retired.
DP World’s stratospheric revenue growth – from less than US$5 billion in 2018 to US$24 billion in 2025 – has been backed by huge borrowing, with total debt hitting US$29.5 billion that year. In 2022 and 2023 they paid $US8.8 billion to shareholders in dividends.
Applying DP World’s BBB+ rate to a $900 million debt tranche on a bullet structure incurs total interest cost of $1.406 billion, $667 million than under a CCHL amortising loan.
That financing gap may be wider still, since CCHL may be able to access concessional green and social loan rates through the Local Government Funding Agency.
Return on equity
Return on equity (ROE) measures profit generated per dollar of shareholder equity.
From 2019 to 2025 LPC’s ROE averaged 4%. Over the same period DP World averaged 9.4%, reaching up to 14.2% in 2025. Delivering a (slightly more conservative) 9% return on LPC’s 2025 equity base of $456 million would have required an additional $23 million annually.
Over the 30 years under CCHL’s amortising structure, every loan payment retires a slice of the $900 million construction debt, with that share of the asset becoming public equity. By year 30 CCHL owns the port debt-free, and its equity has grown to $1.456 billion.
With bullet bonds, the $900 million debt stays on the balance sheet throughout. Assets match liabilities, and the net equity remains constant. At the end of the period the bond matures and is either repaid or refinanced.
Over the 30-year concession the cumulative extraction premium between a 4% ROE on an amortising loan and a 9% ROE on a bullet structure amounts to approximately $453 million. The difference is greater at the beginning of the period, since a 4% return on a rising equity base grows over time, while a 9% return on a flat equity stays constant.
Combined with the $669 million financing premium, the total additional cost of private ownership on this hypothetical comparison exceeds $1 billion over 30 years, cost which would ultimately be borne by the community while benefits flow offshore.
There may be other offsetting benefits like operational efficiencies and productivity gains, but on this comparison they would need to be substantial to justify a billion-dollar premium on a billion-dollar project.
On an otherwise identical $500 million comparison, finance costs are lower but the ROE premium actually ends up being larger over 30 years, because amortising loans build up equity so much faster than bullet bonds. The combined premium is $903 million.
The benefits of a stronger iwi partnership could also be substantial and deserve to be explored in a more comprehensive manner, something that’s well beyond the scope of this analysis.
The due-diligence question here is not whether Tōnui has raised important issues worthy of consideration, that is clear.
The question is whether those issues require a higher cost private concession model, or whether an improved relationship between the Ngāi Tahu rūnanga, CCHL and the port company could deliver the best of both worlds: lower cost investment, continued public ownership and a stronger role for mana whenua in safeguarding the interests of Whakaraupō.
*Edward Miller is researcher at the Centre for International Corporate Tax Accountability and Research.
7 Comments
https://www.youtube.com/watch?v=B_JczjihVxs
This is a corperate movie about a DP World terminal in the port of Rotterdam. It is fully automated, even the ship to shore cranes, and handles about 4 million containers a year with less than 100 employees. I believe that fact is the big angst everybody has when dealing with DP World.
Yet another example of key NZ infrastructure possibly going to foreign control and profit extraction.
If an argument behind this is that the council ownership of the port is resulting in lesser efficiency (Lyttleton has reportedly been the most expensive port in the country) then essentially selling that asset is throwing the baby out with the bath water.
Wiser, in my opinion to undertake a fairly brutal assessment of how the Port is run, and restructure it's operations to improve efficiencies and profitability. Keeping all the benefits in NZ hands.
That would be the ideal solution, but do we have the expertise here to actually run ports efficiently?
Performance would indicate no.
Thinking of things like the failed project to automate the Port of Auckland, that cost the wider country an estimated 1.2 billion dollars, with ongoing losses from falling productivity. There appear to have been no meaningful consequences for the management involved.
And Lyttelton is expensive: importing heavy precision castings it was more cost effective to unload in Timaru and truck them to Christchurch. And yet LPC return runs about 4%??
Do we have the expertise?
Yes that is one valid question. I suspect that we do but what onstacles are there to attract that expertise to Lyttleton? Is it the ownership structure?
Tauranga, Napier and Timaru ports are all majority owned by Councils but are publicly listed companies. Lyttleton along with Otago, New Plymouth, Nelson, Picton, Wellington and Auckland are wholly owned by Councils. Perhaps therein lies the problem.
Perhaps CCC should emulate the ownership structure of Timaru, etc, permitting outside investment but retaining majority ownership and a dividend stream back to councils. Rather than the management of the port being all but council employees.
All these organisations are stand-alone enterprises that, in a lot of circumstances, are essentially competitors with each other.
In theory that should keep costs down for users, but it does mean the pool of talent in each location is small, and how much collegiality is there amongst competitors to improve the state of training and education across the industry?
Given we are so sparse, an organisation that had overarching organisational responsibility would enlarge the talent pool and offer the chance to leverage economies of scale - but how do you construct that so it doesn't become yet another inappropriately corporate-model, monopolistic bureaucracy that actually makes things worse?
Or we could contract out the management to acknowledged experts, without actually selling the asset.
Some background:
The departure of the chief executive of Dubai port giant DP World is the biggest fallout in the Middle East from US Department of Justice documents, which show that disgraced financier Jeffrey Epstein tried to build a powerful network of political figures and business leaders across the region.
https://www.timesofisrael.com/epstein-tried-to-build-powerful-ties-acro…
Some more background:
https://pachodo.org/news-from-various-sources/20962-dubai-ports-giant-d…
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