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Treasurer rejects call to reverse debt-equity swap

May 28, 2015
SA Water is carrying $2.7 billion of State Government debt

SA Water is carrying $2.7 billion of State Government debt

The State Government has rejected Business SA’s call to reverse the 2014 decision transferring $2.7 billion of Government debt to SA Water.

In a pre-Budget submission to the State Government, the peak business lobby said the Government’s debt-for-equity swap had devalued the organisation, compromised its sale prospects, and should be reversed.

Business SA acknowledges the rationale of the Government’s move in which it required SA Water to borrow $2.7 billion which it then paid to the Government under the guise of a return of equity.

“It may well be that SA Water has a lower level of gearing (borrowings) when compared to interstate water utilities,” Business SA said.

“However, that is not sufficient reason to increase the debt of SA Water and consequently reduce the equity held by the South Australian public.

“The equity of SA Water is a public asset and should South Australia ever decide to take advantage of the Federal Government’s yet to be legislated asset recycling initiative, 15 per cent of $2.7 billion amounts to $405 million, an amount which would be foregone unless the debt swap is reversed.

“Accordingly, the State Government should reverse the $2.7 billion debt swap to provide transparency around its true net debt situation and to ensure any future asset sales realise the most value for all South Australians.”

Under the Federal Government’s asset recycling initiatives, states would receive from the Commonwealth an incentive payment equivalent to 15 per cent of the value of the asset sale – as long as all of the proceeds of the sale are invested in new infrastructure.

In response to questions from InDaily, Treasurer Tom Koutsantonis was adamant that SA Water would continue to carry the $2.7 billion debt.

Asked to comment on Business SA’s position, including the statement that the potential sale value of SA water had been reduced by $405 million, Koutsantonis replied: “This is irrelevant.”

“The State Government, unlike the Liberals, will not sell our essential water utilities. We live in the driest state in the driest continent and SA Water will remain South Australian-owned,” he said.

Transferring $2.7 billion of Government debt to SA Water reduces the Government’s shareholding in the utility and InDaily queried the remaining level of equity.

“The Government is the sole shareholder in SA Water and thus its equity is the net assets of the corporation,” Koutsantonis told InDaily.

“At 30 June 2014 SA Water had a net asset position of $8.1 billion. In dollar terms the $2.7 billion equity repayment reduced that amount by 33%.  The Government remains the 100% equity holder of SA Water,” he said.

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