There is a strong argument that the DNZ Property Fund IPO is the worst related party transaction, from a timing point of view, since the dreadful Capital Markets/Fay, Richwhite deal in August 1990.

The reason for this is that the Capital Markets/Fay, Richwhite transaction reintroduced the worst excesses of the 1980s just when we were hoping these deals were a thing of the past.

The DNZ/management company transaction also reintroduces the one-sided related party transaction, which has been a big feature of Hanover, Bridgecorp and other finance companies. These deals should be outlawed in New Zealand unless approved by minority shareholders.

One-sided related party transactions and partial takeover offers, where a group of shareholders receive a much higher offer than other shareholders, have been the bane of New Zealand investors over the past three decades.

The takeover problem was solved in July 2001 with the introduction of the Takeovers Code. The Code, which operates under the Takeovers Act 1993, protects most shareholders whether a company is NZX-listed or not.

A related party transaction is usually where a director or shareholder sells an asset or a company to a listed entity. Related party transactions also involve loans granted to directors or shareholders.

Unfortunately most of the related party transactions in New Zealand have destroyed significant minority shareholder value. This was particularly true during the 1980s boom when directors and controlling shareholders sold assets to listed companies at grossly inflated prices.

There was a short break from these destructive transactions until Capital Markets, which was controlled by Michael Fay and David Richwhite, acquired the merchant bank group Fay, Richwhite for $225 million.

The transaction, endorsed by an independent appraisal report written by Tony Frankham of Deloitte Ross Tohmatsu, was strongly opposed because investors didn't want to see a return to the darker days of the 1980s.

These concerns were justified because the merchant bank was worth substantially less than $225 million when Fay and Richwhite bought back the listed company five years later.

The related party problem has been partially solved through the introduction of stricter NZX rules but these only apply to listed companies. The unlisted sector is still largely unregulated in this area, which is why there have been so many related party problems amongst finance companies, unlisted companies and in the property sector.

This brings us back to DNZ Property Fund Limited, which is in the process of raising $151.5 million from the public through the issue of 184.7 million shares at 82c a share.