Problem-plagued convention centre subject of new legal action
SkyCity Entertainment's decision to file legal proceedings seeking $330 million in compensation from Fletcher Construction for losses arising from delays to the completion of the NZ International Convention Centre was always going to be a case of when not if.
And judging by the market's muted reaction to the news, there appeared to be little surprise among investors given the share prices of both companies barely reacted following the announcement.
Fletcher Building shares closed on Friday down 2.5 percent at $3.07, while SkyCity shares ended the week down 1 percent at 94c.
It's a far cry from May 2013 when SkyCity and the government announced with great fanfare that a heads of agreement had finally been reached to build the long-talked-about international convention centre at a cost of what was then estimated at $400m, with an expected completion date of 2017.
At the time, Fletcher Building shares were trading at around the $8 mark and SkyCity Entertainment at $4.50.
Economic Development Minister Steven Joyce confidently projected the convention centre would provide a $90m annual injection into the economy as well as creating an estimated 800 jobs on completion.
Fast forward to today and it is difficult to think of any building project in the nation's history that would come close to rivalling the convention centre for the litany of problems that have plagued its completion from beginning to end.
From significant cost blowouts, legal disputes, protracted delays, construction defects as well as a disastrous fire that took a week to extinguish and required almost a complete rebuild of the buildings inner core, it's difficult to consider what more could have possibly gone wrong for a building project that has seemed cursed from the outset.
With a newly revised completion date that will finally see the building open in February next year – nine years later than originally planned and with a final cost estimated at around $900m, more than twice the original estimate – Fletchers must be rueing the day it decided to bid for the contract.
Not only has it cost the company dearly in both financial and reputational terms, but it has also contributed to the resignation of former chairs Sir Ralph Norris in 2018 and Bruce Hassall last year.
And added to the above final completion cost, if you take Joyce's 2013 estimate of economic benefit at face value and deduct a couple of years for the Covid pandemic when the conference market was effectively mothballed, the earnings forgone from the delayed opening amounts to a further $500m cost to the economy, and SkyCity earnings in particular.
It's not hard to see why the company feels aggrieved by the totality of the impact all of this has had on its business which is reflected in its share price now trading at a 25-year low.
For its part Fletcher Building argued in its statement to the NZX on Friday that it had already paid significant liquidated damages to SkyCity in relation to the delays in delivering the NZICC in accordance with the building contract.
'Accordingly, Fletchers will vigorously defend itself against the SkyCity claim for further liquidated damages beyond the capped amount provided for in the building works contract.'
Though Fletchers acknowledged that the delivery of the convention centre had 'suffered from a number of challenges' it 'absolutely rejected' the claim by SkyCity that it was in breach of its contract in the manner alleged.
Attempting to put a positive spin on the matter, Fletchers concluded its statement by adding it was confident that 'once the NZICC is available to be seen and used by the public and international guests they will be delighted with the quality of the asset that will make a meaningful contribution to the NZ economy'.
For SkyCity Entertainment shareholders that will come as cold comfort for a business that has paid dearly for a project that was supposed to be open nine years ago, while for Fletcher Building shareholders the handover can't some soon enough. Though, if SkyCity proves to be successful in its legal action, it will come with a final and potentially nasty financial sting.
As always, the only winners out of all of this will be the lawyers who must surely be buoyed at the prospect of two of NZ's largest companies going head to head in the courts given the substantial billings that will result. It promises to be a closely followed case with significant implications for both sides and will no doubt expose further details of a project that, for all its supposed aesthetic value, will forever be seen as a national embarrassment of incompetence, mismanagement, and neglect.
Markets push higher as investors remain optimistic
Equity markets in the US and Australia are now within striking distance of eclipsing their all-time highs, while locally the NZX50 remains 5 percent below its December 2024 high and 8 percent below its all-time high from January 2021.
In the US, the benchmark S&P 500 index closed on Friday at exactly 6,000 needing just 147 points to take out its previous all-time high set in February. In Australia it's a similar story with the ASX200 now just 100 points below its all-time high.
Locally, listed property stocks received a small boost despite Stats NZ's March quarter data on the value of building activity revealing a mixed picture. Residential building work increased by 2.6 percent, while non-residential work decreased by 3.9 percent, resulting in a flat total building volume on a seasonally adjusted basis.
Elsewhere, Ebos Group recouped most of its earlier losses after its free float increased following a sell-down by longtime major shareholder Sybos exiting its stake and selling nearly 27m shares for $949m.
NZME shares closed out the week unchanged at $1.19 despite a significant board shake-up in which former radio entrepreneur and Cabinet minister Steven Joyce assumed the chair of the listed media company while activist shareholder Canadian billionaire Jim Grenon, now a New Zealand resident, and whose actions sparked the whole saga, was also elected as a director.
Meridian Energy shares gained almost 5 percent for the week to close at $5.86 after announcing New Zealand Aluminium Smelters' plant at Tiwai Pt in Southland will ramp up production sooner than expected, thanks to improved hydro lake storage levels. The smelter has an agreement with Meridian that enables the power generator to request Tiwai, the country's biggest power user, to reduce production when the system is stretched.
Meanwhile, the Paris-based Organisation for Economic Co-operation and Development (OECD) issued its latest report on the global economy saying that it expected growth to slow from 3.3 percent in 2024 to 2.9 percent in 2025 and 2026.
The slowdown is expected to be most concentrated in the United States, Canada, Mexico and China, with smaller downward adjustments in other economies.
In its report on New Zealand, the OECD acknowledged that though an economic recovery was under way, the country would need to battle increasing trade headwinds.
It expected the expansion to continue with growth projected to rise to 0.8 percent in 2025 and 1.7 percent in 2026 supported by lower interest rates.
'However, increased trade restrictions and high uncertainty about trade policy globally will temper external demand, confidence and the pace of the recovery,' it said.
It forecast inflation would ease because of lower oil prices and higher spare capacity including in the labour market with unemployment expected to peak in late 2025 at about 5.4 percent.
The OECD said the pace of fiscal consolidation was appropriate but may need to be slowed if the expansion stalls.
In the US bond yields rose after monthly jobs data for May allayed concerns of an imminent economic slowdown, while equities also gained amid hopes US-China trade tensions are easing after US President Donald Trump confirmed that much-anticipated negotiations will begin tomorrow (US time).
Though US job growth moderated in May (139,000 new jobs verses 125,000 forecast) and the prior months were revised lower, the news bolstered investor sentiment that had been primed for disappointment after data last week raised doubts about the buoyancy of American hiring.
Trump and Musk urged to repair their acrimonious break up
It all started off so well. The ambitious and unconventional US President Donald Trump and Elon Musk the world's most successful and wealthiest tech entrepreneur teaming up to Make America Great Again.
But it was always going to be a 50/50 bet that their relationship would survive with several commentators giving the 'bromance' less than six months before their respective egos got the better of them.
And so they have been proven correct after an acrimonious tweet storm erupted on Friday (NZ time) that has left the relationship in tatters and the two sides refusing to speak to one another.
At the centre of the break-up are plans by Trump to implement further tax cuts and fiscal spending that will significantly ramp up the national debt by as much as 10 percent at a time Musk has been focused on eliminating wasteful government expenditure and reducing the deficit.
Allies have urged the two sides to repair their now badly damaged relationship, seeking to limit the political and commercial fallout from last week's spectacular break-up.
The fracturing of the relationship between the powerful pair threatens to derail the White House's legislative agenda and wreck a hard-won alliance between Silicon Valley and Washington.
'It is unfortunate … I hope they will come back together,' Texas Senator Ted Cruz, who was in the Oval Office when Trump slammed Musk, the Financial Times reported over the weekend. 'A lot of conservatives are feeling like this is not good, let's hug and make up.'
The Tesla chief, who had spent last Thursday launching more explosive attacks on Trump, seemed to be open to a détente.
However, Trump on Friday claimed he was 'not even thinking about Elon', before adding on CNN: 'The poor guy's got a problem … I won't be speaking to him for a while I guess, but I wish him well.'
He repeated that line on Saturday, telling television network NBC he had no intention of mending their relationship. Further, Trump warned of 'serious consequences' if Musk funded candidates to run against Republicans after a poll of his 220 million X followers musing about forming a new political party in the US.
Tech figures who backed the administration hoping it would usher in an era of tax cuts and deregulation have been racing to contain the quarrel, with limited success.
'Elon isn't taking calls from anyone,' one Silicon Valley financier and big donor to Republican candidates told the FT. 'Not from people who have billions invested in his companies … The Valley is losing their shit.'
Attempts to get Trump to reconcile with his former 'first buddy' received a further set-back on Friday morning after news the president planned to sell or give away the Tesla he had bought in March as a show of support for Musk. The White House also dismissed reports of a conciliatory phone call between the two men.
Cracks in Silicon Valley and Washington's marriage of convenience had been appearing for weeks, particularly over Trump's tax bill which irked Musk. Deficit hawks have balked at the legislation adding trillions to the US debt pile, while more socially progressive tech figures have bridled at proposed cuts to entitlement programmes such as Medicaid.
Musk's allies aligned with Trump fear several Silicon Valley figures who followed him into government could find their roles are in peril.
The sudden deselection of Jared Isaacman, a tech founder and friend of Musk's who had been nominated to lead Nasa, was the start of an expected 'purge', said one person close to the administration.
It was also another expensive week financially for Musk with Tesla shares falling almost 15 percent in the wake of the breakup with Trump and the expected loss of valuable tax rebates for buyers of EVs. As a result, Tesla shares recorded their worst week so far this year wiping a further US$152 billion from the company's market capitalisation with the shares now down 22 percent year-to-date.
Coming up this week
Monday
Business Employment and Financial Data (Mar qtr) – Stats NZ
Tuesday
Scales Corp AGM
Wednesday
Migration & International Travel (April) – Stats NZ
NZ King Salmon AGM
Thursday
Electronic Card Transactions (May) – Stats NZ
Local Authority Stats (March qtr) – Stats NZ
Friday
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Scoop
6 hours ago
- Scoop
What You Need To Know If Your CV Is Less Than You Owe On Your Property
Many property owners have seen the capital value of their properties drop in the past week. , Money Correspondent Many Auckland property owners have seen the capital value, or CV, of their properties drop in the past week. Valuations have been updated for the first time since 2021, when New Zealand's property market was hitting post-Covid heights. The new CVs are dated to mid-last year, and typically dropped 9 percent, on average. For some buyers, particularly those who purchased recently, that's been uncomfortable reading. But mortgage advisers say, in general, the CV of a property doesn't matter a lot to lenders. While a drop in value would decrease an owner's equity in a property on paper, they say lenders rely on other methods to determine a property's value and the owner's stake in it. 'It's yesterday's news,' said David Cunningham, chief executive of Squirrel. He said while people might look at a property's CV because it was public information, it was no longer used in calculations for a mortgage. 'In the old days it was but you know now you've got all these models from Cotality and Valocity and so on – and you can go on to or One Roof and find a pretty damn good valuation. They've got the benefit of being pretty much real time.' He said people did not need to worry even if their CV showed they now owed more than their home was worth. He said banks talked about home loan customers being 'delinquency managed' which meant that it was only if they stopped paying their home loans that the bank would investigate. Borrowers who were facing trouble with repayments should talk to the bank before that happened, he said. Some borrowers are paying low-equity premiums because they took out loans with less than 20 percent deposit. These margins can be removed once the loan is paid down, or the value of the property increases to the point where the owner has 20 percent equity. But Cunningham said the new CVs would not affect that process either. People who had built up enough equity to have the margin removed would typically be using banks' desktop valuation data to do so. 'Registered valuations might come into play if it's an unusual property or in an area where there aren't a lot of property sales. So some of the more provincial locations and properties … but for major centres the valuation models, called AVMs, automated valuation models, are what the bank uses.' Glen McLeod, head of Link Advisory, agreed banks would usually use desktop valuations to get an idea of the value of a property, or a registered valuation in situations where it was necessary to be precise about a value. 'If you have a sale and purchase agreement for $850,000 and the registered valuation comes in at $850,000 that's what it's worth even if the CV is $750,000.' Loan Market mortgage adviser Karen Tatterson agreed CVs were rarely used by banks to assess loan-to-value ratios, if ever. She said the problem was that CVs were quickly out of date. 'The Auckland Council CVs that were released yesterday are based on a value ascertained approximately a year ago so they are already out of date and do no reflect the true 'market' value of the home.'
Scoop
9 hours ago
- Scoop
What You Need To Know If Your CV Is Less Than You Owe On Your Property
Article – RNZ Many Auckland property owners have seen the capital value, or CV, of their properties drop in the past week. Valuations have been updated for the first time since 2021, when New Zealand's property market was hitting post-Covid heights. The new CVs are dated to mid-last year, and typically dropped 9 percent, on average. For some buyers, particularly those who purchased recently, that's been uncomfortable reading. But mortgage advisers say, in general, the CV of a property doesn't matter a lot to lenders. While a drop in value would decrease an owner's equity in a property on paper, they say lenders rely on other methods to determine a property's value and the owner's stake in it. 'It's yesterday's news,' said David Cunningham, chief executive of Squirrel. He said while people might look at a property's CV because it was public information, it was no longer used in calculations for a mortgage. 'In the old days it was but you know now you've got all these models from Cotality and Valocity and so on – and you can go on to or One Roof and find a pretty damn good valuation. They've got the benefit of being pretty much real time.' He said people did not need to worry even if their CV showed they now owed more than their home was worth. He said banks talked about home loan customers being 'delinquency managed' which meant that it was only if they stopped paying their home loans that the bank would investigate. Borrowers who were facing trouble with repayments should talk to the bank before that happened, he said. Some borrowers are paying low-equity premiums because they took out loans with less than 20 percent deposit. These margins can be removed once the loan is paid down, or the value of the property increases to the point where the owner has 20 percent equity. But Cunningham said the new CVs would not affect that process either. People who had built up enough equity to have the margin removed would typically be using banks' desktop valuation data to do so. 'Registered valuations might come into play if it's an unusual property or in an area where there aren't a lot of property sales. So some of the more provincial locations and properties … but for major centres the valuation models, called AVMs, automated valuation models, are what the bank uses.' Glen McLeod, head of Link Advisory, agreed banks would usually use desktop valuations to get an idea of the value of a property, or a registered valuation in situations where it was necessary to be precise about a value. 'If you have a sale and purchase agreement for $850,000 and the registered valuation comes in at $850,000 that's what it's worth even if the CV is $750,000.' Loan Market mortgage adviser Karen Tatterson agreed CVs were rarely used by banks to assess loan-to-value ratios, if ever. She said the problem was that CVs were quickly out of date. 'The Auckland Council CVs that were released yesterday are based on a value ascertained approximately a year ago so they are already out of date and do no reflect the true 'market' value of the home.'
Scoop
10 hours ago
- Scoop
What You Need To Know If Your CV Is Less Than You Owe On Your Property
, Money Correspondent Many Auckland property owners have seen the capital value, or CV, of their properties drop in the past week. Valuations have been updated for the first time since 2021, when New Zealand's property market was hitting post-Covid heights. The new CVs are dated to mid-last year, and typically dropped 9 percent, on average. For some buyers, particularly those who purchased recently, that's been uncomfortable reading. But mortgage advisers say, in general, the CV of a property doesn't matter a lot to lenders. While a drop in value would decrease an owner's equity in a property on paper, they say lenders rely on other methods to determine a property's value and the owner's stake in it. "It's yesterday's news," said David Cunningham, chief executive of Squirrel. He said while people might look at a property's CV because it was public information, it was no longer used in calculations for a mortgage. "In the old days it was but you know now you've got all these models from Cotality and Valocity and so on - and you can go on to or One Roof and find a pretty damn good valuation. They've got the benefit of being pretty much real time." He said people did not need to worry even if their CV showed they now owed more than their home was worth. He said banks talked about home loan customers being "delinquency managed" which meant that it was only if they stopped paying their home loans that the bank would investigate. Borrowers who were facing trouble with repayments should talk to the bank before that happened, he said. Some borrowers are paying low-equity premiums because they took out loans with less than 20 percent deposit. These margins can be removed once the loan is paid down, or the value of the property increases to the point where the owner has 20 percent equity. But Cunningham said the new CVs would not affect that process either. People who had built up enough equity to have the margin removed would typically be using banks' desktop valuation data to do so. "Registered valuations might come into play if it's an unusual property or in an area where there aren't a lot of property sales. So some of the more provincial locations and properties … but for major centres the valuation models, called AVMs, automated valuation models, are what the bank uses." Glen McLeod, head of Link Advisory, agreed banks would usually use desktop valuations to get an idea of the value of a property, or a registered valuation in situations where it was necessary to be precise about a value. "If you have a sale and purchase agreement for $850,000 and the registered valuation comes in at $850,000 that's what it's worth even if the CV is $750,000." Loan Market mortgage adviser Karen Tatterson agreed CVs were rarely used by banks to assess loan-to-value ratios, if ever. She said the problem was that CVs were quickly out of date. "The Auckland Council CVs that were released yesterday are based on a value ascertained approximately a year ago so they are already out of date and do no reflect the true 'market' value of the home."
