Noble subdivision in Yaldhurst 2013. Iain McGregor/Fairfax
Received from Christchurch Driver [CD]
Fri, 29 Jan 2016 at 1:01 a.m.
Subject: Delta and how to hide $10M
This correspondent was curious to know the extent of Delta’s exposure on their failed attempt at the Christchurch subdivision market. DCHL chairman Graham Crombie becomes more bashful than a teenage boy at his first disco when discussing the potential numbers in the media. Mr Crombie coyly advises that “millions” are owed and he is confident “millions” will eventually, in the fullness of time be received, albeit a few less million than is owed. Link
Of course, as John Maynard Keynes famously said, “in the long run we are all dead”, and this is also clearly the view of the financier (named by The Press last year as Southpac Property Investments) who has watched years roll by with no interest or repayments, and has called in the mortgage.
However much Mr Crombie wishes to hide in the corner, desperate to be ignored, clutching tight to his chest those precious numbers, he has been upstaged. His CEO Grady Cameron, has tantalised us with a peep of a disclosure in his opening statement in the 2015 Delta Annual Report on the DCC website. Mr Cameron confirms without being specific that Delta have “an outstanding debt” on a Christchurch subdivision and that the “fair value” of the secured debt is independently valued at $13.2M. He notes helpfully that this value was up from $12.8M last year. We can all relax now….
Thus we know that $13.2M is included as an asset somewhere in the Delta accounts. Delta says it has $59.705M of assets in its summary on page 15. But does it really ? Page 25 shows the breakdown of assets with $25.244M of the $59.705M being “trade receivables”. (The rest of the assets are basically plant, equipment and property.) At page 46, in “Note 23” safely buried far from public scrutiny, lies the smoking gun of Delta’s financial assets of $25.244M. There it is, a provision for “Less estimated doubtful debts” of $9.761M, that reduces the figure to $25.244M. This is a highly original description for bad debts, but desperate times call for desperate euphemisms.
So let’s be clear here – more than half of Delta’s financial assets ($13.2M) – amount to a bad debt in a failed subdivision, that is
a) now under mortgagee sale
b) has a third (or fourth) tier finance company as first mortgagee (because the banks would not lend on it)
c) that was built incorrectly, with the incorrect sized roads
d) faces ongoing legal action
e) cannot have titles released
f) has noisy 33KV powerlines running through it
g) has been completed since 2013 with no money received.
Continuing on, the news for the Owners (us) becomes more dire. The $9.761M “doubtful debts” included a carry over amount of $4.837M from 2014, which in turn included a $1.932M provision in 2013. The Yaldhurst (aka Noble) subdivision turned bad in 2012-2013, so it is very likely that the vast majority of the entire $9.761M is a bad debt provision for this heinously bad decision.
What it means is that Mr Crombie cannot possibly be “confident” of having a large proportion of the debt repaid. A large proportion has already been written off, it seems. This is not a “timing issue” as he claims. Delta has already written off up to almost $10M. That would put the total Delta exposure in excess of $20M.
Mr Crombie needs to identify how this proposal came to be put to the Delta board and which board members and executive staff supported it. Releasing board minutes on this item would be helpful for interested ratepayers to understand the history. Mr Crombie should also provide a comprehensive, clear and truthful report to Dunedin City Council with the full facts of Delta’s position and how the council-owned company got into this mess. This may be awkward for Mr Crombie as the people concerned will be well known to him but that is the price and the consequence of the position he chose to accept.
Under a worst case scenario, if Delta recovers very little of the $13.2M they say they will get, their solvency is threatened. Up to 80% of the Delta shareholders equity of $15.804M will disappear, with just $2-3M left. That would mean the shareholders equity to debt ratio would be out of this world. Delta has $26.852M of debt (to DCC). To build back up to the current equity position, which at $15.804M is not high, would mean years of retaining earnings within the company with no dividends to Council. Delta’s position would be so weak that the Council would either have to inject funds or DCC treasury would foreclose on its own company….
Delta in 2015 paid DCC a dividend of $2.5M. Without this in future years there will be significant rate rises each year.
That is bad enough but the bigger issue is how, after similar multimillion-dollar Delta debacles at Luggate and Jacks Point, was this allowed to happen. Dunedin ratepayers owe thanks to Cr Lee Vandervis. His has been one often lonely voice attempting to get to the truth of this matter. We must trust that he and any other like-minded councillors will be able to enforce some accountability onto Delta.
Related Posts and Comments:
21.1.16 Delta #EpicFail —Yaldhurst Subdivision
15.12.15 Noble property subdivision aka Yaldhurst Village | Mortgagee Tender
21.9.15 DCC: Not shite (?) hitting the fan but DVL
20.7.15 Noble property subdivision —DELTA #LGOIMA
1.4.15 Christchurch subdivisions: Heat gone?
24.3.15 Noble property subdivision —DELTA
23.3.15 Noble property subdivision: “Denials suggest that we have not learned.”
17.3.15 DCC —Delta, Jacks Point Luggate II…. Noble property subdivision
Posted by Elizabeth Kerr
Disclaimer: This post, ‘Delta #EpicFail —Yaldhurst Subdivision ● Some forensics’, does not constitute or imply an endorsement or recommendation of any kind by Elizabeth Kerr and the parties to What if? Dunedin.