O'Sullivan: Clark meant well but has lots to learn

By FRAN O'SULLIVAN

Loose lips sink ships - but they also make airline shares fly.

Unfortunately for Helen Clark, what started out as a confidence-building exercise for the embattled national flag carrier has embroiled her in a nasty furore over just how far a Prime Minister should go in making market-sensitive comments.

The Government has been doing due diligence on Air New Zealand before either taking a direct equity stake or underwriting a capital raising exercise. In these circumstances, a prudent stance is required.

Helen Clark and a team of cabinet ministers, including Finance Minister Michael Cullen, have been receiving frequent updates from Government negotiators on the recapitalisation discussions for the airline.

On Monday, she suggested that the airline might go into statutory management - but the Government and Air New Zealand are trying to forge a viable rescue plan.

The Prime Minister is clearly privy to market-sensitive information about Air New Zealand's prospects as the cabinet weighs whether to invest the taxpayer's money in airline shares.

So after her "Don't Sell" message to Air New Zealand shareholders was broadcast on television on Tuesday evening, the airline's share prices firmed.

Many New Zealanders took this as an expression of confidence from someone privy to absolute information and decided to buy shares on the strength of it.

Her comments also forced the New Zealand Stock Exchange to call a halt to trading in Air New Zealand shares while assurances were sought from the airline that it had kept the market fully informed. The exchange's relationship is with the listed issuer, not the Government, so it was up to Air New Zealand to provide the assurances.

Already cap in hand to the Government for a $550 million loan, the airline was not going to bite the hand that feeds it, so Helen Clark's comments and the resultant furore were quickly ascribed to a news media beat-up by all the parties.

Hair-splitting over what "Don't Sell" means quickly became a platform to get the Prime Minister off the hook. Don't Sell notices are used when a company is about to post good news, said one regulator.

Investors in Air New Zealand could be forgiven for asking what is the difference in their case.

What is more relevant is that the listing rules provide confidential cover for companies to do deals away from the public glare - although the situation is clouded under insider trading laws on due diligence. Third-party confidentiality obligations have not been tested here.

Air New Zealand's disclosure record is already the subject of transtasman regulatory probes.

The New Zealand Securities Commission - headed by Jane Diplock, a hard-nosed Australian - is liaising with its Australian counterpart as they investigate whether Air New Zealand made adequate market disclosures over Ansett's worsening financial condition. Market surveillance panel chairman Bill Falconer has suggested the record may be light.

One of the instructive factors from yesterday's farcical events, largely overlooked by the news media, was the decision by the New Zealand Stock Exchange to "call a halt" to trading in Air New Zealand shares - not a suspension as headlines in both the Australian Financial Review and Evening Post had screamed.

This is not mere semantic hair-splitting. Trading halts are seen as part of normal market life. For instance, they are imposed just before listed companies post their results or make other market-sensitive announcements.

Suspension is of a different order. For instance, if the exchange had used its powers to suspend Air New Zealand under listing rule 5:4 it could conceivably have triggered unforeseen events. Banking convenants are often predicated on the basis that no suspension of the listed issuer is ordered by the exchange.

In Air New Zealand's case - where it is already in breach of some of its covenants - headlines on internet news sites could have caused alarm among its bankers.

If the exchange had decided that a false market had existed in Air New Zealand shares it could have moved to suspend the company.

%The precise nature of the sharemarket lexicon was lost on Opposition political parties.

%National MP Belinda Vernon wrongly claimed "PM's loose lips suspend Air New Zealand shares" (a physiological improbability). Although she was on the page with her questioning of whether Helen Clark should have been commenting on the issue as she was privy to inside information about the bailout negotiations.

Act leader Richard Prebble, a lawyer, was quick to affirm the Finance Minister's view that under New Zealand law a recommendation not to sell shares does not make you liable for legal action.

Mr Prebble argued that if the Government decided not to underwrite Air New Zealand shares, shareholders who lost money might well have a case against the Crown.

The most biting comments were made by Act MP Stephen Franks. The former commercial lawyer suggested Helen Clark's exhortations slipped through a little-known loophole of insider trading law.

In my view, Helen Clark started out with the best intentions but slipped because of a lack of commercial nous and an understanding of how markets work.

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