Govt rejected Air NZ call to back rights issue

By FRAN O'SULLIVAN

The Government was asked to underwrite an $850 million rights issue for Air New Zealand two weeks after the September 11 terrorist attacks jeopardised its bailout plan.

The proposal would have given shareholders a chance to maintain their stakes by investing more in Air NZ.

The company's board detailed acting chairman Jim Farmer to approach the Government on September 24 with an urgent request to underwrite the $850 million equity raising issue. But the Government opted for an $885 million debt and equity package, which dilutes existing shareholders' stakes.

Dr Farmer's request was made with the understanding that if the Government did not ensure the company was properly capitalised, directors would have asked the Crown to place it in statutory management.

The underwriting request has been disclosed in documents obtained by the Herald which shed new light on the negotiations to rescue the national flag carrier.

The Securities Commission is investigating reports - officially denied - that the Prime Minister's office took market soundings on September 25 over whether the Government should underwrite a capital raising issue or inject new equity.

Revealing the background to the talks, Air New Zealand adviser Roger France - now executive director of the airline - said the Government's "hard-nosed" commercial attitude to the second round of bailout negotiations was driven by a desire to show the public that the terms did not involve a "transfer of value from the Crown to the remaining shareholders in Air New Zealand".

Under the first bailout package, Air NZ's major shareholders, Brierley Investments and Singapore Airlines, each committed to put $150 million of new equity into the airline, with the Government giving a $550 million loan.

But opposition politicians criticised the deal because it allowed the major shareholders to increase their combined stake from 55 per cent to more than 80 per cent.

When global aviation stocks fell after the World Trade Center attacks, the major shareholders advised they were not prepared to put money in without due diligence.

The airline now says it is close to finalising backing for the $885 million package and an agreement will be confirmed today.

It said the first instalment of the rescue, the Government's $300 million loan, would be madethis week.

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