Don’t bet against our ambition: Tainui

It’s breathlessly ambitious.

The $3.5 billion vision is for an inland port, freight logistics hub and residential development, intertwined with parks, cycleways and open areas, to be built at Ruakura, on the fringe of Hamilton.

Can iwi developer Tainui Group Holdings (TGH) pull it off?

Tainui has experienced a stunning turnaround, shedding the old wasteful, nepotistic, loss-making ways to become a commercial giant with its The Base/Te Awa shopping mall development in Hamilton, a string of Crown tenants in its commercial property portfolio and hotels in Hamilton and at Auckland Airport.

The Base involved hundreds of millions of dollars – but Ruakura will run into the billions.

Plans to develop its nearly 500ha site will be staged over a lazy 50 years, and it already has a business partner in Chedworth Properties. But the vision seems too long-sighted and the obstacles almost ominously large.

Putting aside the recent knockback by Hamilton City Council, rejecting a private plan change – although TGH has referred its application to the Environmental Protection Agency because it is “nationally significant” – how can Tainui afford it?

Funding streams
The iwi group has two capital funding streams: retained earnings and debt.

Last year, iwi shareholder Waikato-Tainui Te Kauhanganui Incorporated, capitalised a $70 million loan. Tainui, whose balance sheet also includes Waikato-Tainui Fisheries, has already drawn $160 million of its $250 million bank debt, with the headroom earmarked for a number of new investments (see NBR print edition, July 19).

Tainui has amassed assets of more than $700 million, mostly in investment properties, but the tribe’s intention is to grow its portfolio, not diminish it.

Patiently, but pointedly, TGH chief executive Mike Pohio says the iwi’s commercial arm has been in this position before.

“When we started with The Base in 2003 we were unable to secure borrowings because we’d been through a period where TGH had defaulted on loans.

“We were emerging as a commercial enterprise and I’m sure the question got asked at that time, can we do all of this on our own, could we spend $300 million to $400 million?

“That looked like an insurmountable proposition at that time.

“But what has happened, of course, is that we’ve drawn in the first instance on a joint venture with arguably New Zealand’s best retailer, in The Warehouse, we’ve drawn on the input of others in terms of design, construction, project managing, financing.

“We’ve been able to draw all of that together, buy out our joint venture partner and get to a point now where through a succession of masterplans and a succession of stages we’ve got absolute confidence that we can not only finish that project but we can turn our attention to Ruakura."

Mr Pohio admits $3.5 billion looks “way bigger” than its balance sheet can afford.

But for Tainui it’s about baby steps – get the regulatory approval, get the infrastructure in and the initial development away, before revisiting the pace of the development and the potential of pulling in partners to exploit its asset.

“We don’t immediately rush towards a selldown of the proposition at all, we don’t immediately rush towards a joint venture.

“What we have got the capability to do is truly establish it and draw in, as is appropriate at each stage, those skills and resources and partners that will turn into something valuable for us and for them.”

Chasing returns
Tainui’s new investment strategy, as outlined in NBR print, is riskier as it chases higher-yielding returns. But it is also reading the market – stalling planned expansion at The Base until the retail environment recovers.

A chief investment officer, who is expected to be appointed within weeks, will bring a new eye to its existing developments and oversee new ones.

Tainui is considering investing in companies, after a brief but successful foray into equities, and broadening of its portfolio beyond commercial and residential property. It’s another seemingly mature move, although only time will tell if their success at The Base will be replicated.

At its core, Tainui remembers why it is there.

Mr Pohio says it will deliver on promises to its shareholder for increasing dividends and keep to a prudent 30% bank debt to total assets gearing.

Sure, he says, a purely commercial approach would give a logical argument for divesting some of its lower-yielding investments such as those in forestry, agriculture and fishing.

“But that disregards who we are and who we’re accountable to.

"Our shareholder who received the settlement has charged us with managing those settlement assets and the intention our shareholder has is to grow the tribal estate, not shrink it.”

dwilliams@nbr.co.nz