By DANIEL RIORDAN
At least one of the big institutions that underwrote Air New Zealand's controversial $284 million rights issue is contemplating legal action against the airline.
At issue is the airline's dramatic profit downgrade last week, less than a month after assuring investors in its rights issue prospectus that the outlook for the year ahead was sound, and just after a bullish roadshow talking up its prospects.
The downgrade scared off many shareholders from taking up the rights, leaving underwriters to pick up the shortfall.
The airline is today expected to disclose how much that was.
Securities regulations require a company to detail in its prospectus anything that is material and new since its last financial statement.
In Air New Zealand's case, that was at the end of August when the company released its June-year result.
A senior staffer at the sub-underwriter, who asked not to be named, said it was unclear how much of what had happened in the past month could have been foreseen, or whether the airline had covered itself just by highlighting some of the risks.
Legal action against the airline was under discussion.
The Stock Exchange is continuing its investigation and the Securities Commission is also looking into possible breaches of disclosure rules relating to the rights issue prospectus.
In light of comments last week from chairman Sir Selwyn Cushing indicating that the company was trading well down on its projections, analysts slashed their full-year profit forecasts from about $250 million to between $50 million and $100 million.
Air New Zealand A shares were trading at 147c, 3c below the rights issue price of 150c, when the issue closed on Friday, offering no incentive for shareholders to take up their renounceable one-for-three rights.
Assuming holders of the B shares take up their full entitlement (B shares were trading at 185c when the rights issue closed, offering subscribers to the issue a 35c discount) and big shareholder Brierley Investments (which is also a sub-underwriter) takes up its A share entitlement, the most sub-underwriters will have to fork out is $60 million.
But the shortfall is likely to be smaller as many A shareholders will have taken up their entitlements before Sir Selwyn delivered his profit bombshell at last Wednesday's annual meeting.
A shares rebounded yesterday to 150c and the B shares to 205c.
Salomon Smith Barney analyst Jason Smith said Air New Zealand had lost more than the opportunity to complete a successful $284 million rights issue. In a report to the broking firm's clients, he queried the airline's credibility.
"Unfortunately, we now believe many foreign shareholders - many of whom thought the company was rather small and illiquid to start with - will be even more hesitant to invest in the company given the significant hit to its credibility."
At the same time Mr Smith remained "cautiously positive" about the airline's medium-term prospects, with chief executive-elect Gary Toomey starting next month, large potential synergy benefits from Ansett and strong inbound passenger growth to Australasia.
Meanwhile, the Sydney Morning Herald reported yesterday that Ansett Australia, wholly owned by Air New Zealand since June, is trading at a loss, with its market share down to 41.5 per cent and falling in the face of aggressive marketing from Qantas and new entrants Impulse Airlines and Sir Richard Branson's Virgin Blue.
An unnamed airline executive in Sydney said only savage staff cuts would restore profitability and the airline's competitiveness.
He said that in the past month about 250 middle management at Ansett and Air New Zealand had been made redundant.
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