Press Release – New Zealand Labour Party
Ministers pressured Solid Energy to increase its debt levels so it could return bigger dividends to the Government despite knowing the company was facing financial difficulties, says Labour Leader David Shearer.David
13 March 2013 MEDIA STATEMENT
Nats milked troubled Solid Energy for cash
Ministers pressured Solid Energy to increase its debt levels so it could return bigger dividends to the Government despite knowing the company was facing financial difficulties, says Labour Leader David Shearer.
“Bill English knew that coal prices were forecast to decline in 2009 but still urged Solid Energy to increase its gearing (debt to equity) ratio. That means ‘go out and borrow more’ despite knowing there was trouble ahead.
“The Finance Minister told Parliament today he didn’t know coal prices were going to decline. But documents obtained by Labour show that he did.
“In May 2009, shareholding ministers, including Bill English, wrote to Solid Energy expressing disappointment with the ‘forecast decline’ in its financial performance and ‘dramatic decline in profitability and dividends’.
“In it, they urge Solid Energy to increase its gearing ratio despite confirming that they’re aware there has been a ‘significant decline’ in forecast coal prices.
“At the same time, the Government was demanding increased dividends. And Solid Energy paid up, returning $130 million over four years, including $30 million in late 2011 by which time coal prices had further declined and the company was in financial distress.
“The company’s total borrowing ballooned from $13 million in 2009 to $191 million the following year and $313 million by 2012.
“John Key and his ministers are desperately dumping the blame on the Solid Energy board. But the real blame rests with them. They were urging the company to borrow more despite knowing stormy financial times were ahead. They knew the company was in trouble but continued to treat it like a cash cow.
“It’s time John Key took responsibility. While Solid Energy’s woes are complex and this is not the only factor in its decline, the pressure from ministers to borrow more and pay bigger dividends certainly contributed to its current dire financial straits,” said David Shearer.
NOTE: Letter from shareholding ministers to Solid Energy attached