KEY POINTS:
Market operator, market regulator, listed issuer, investment fund provider, and now a business news website - New Zealand Exchange has so many strings to its bow, it must be hard to avoid tying itself in knots at times.
Tuesday this week was surely one of those times. It
was interesting to see Contact Energy's share price spike upwards shortly before its shares were placed in a trading halt at 12.36pm, "pending a material announcement".
That announcement was the news that BG Group had gone hostile with its A$13.8 billion ($17.5 billion) bid for Contact's Australian majority owner Origin Energy.
Stock Takes isn't sure what time that announcement made it on to the ASX but the NZ Press Association managed to get a Reuters report about it onto its wire at 12.24pm, an hour and 25 minutes before the news was announced to the market here at 1.49pm.
NZX's website has access to NZPA and Reuters newsfeeds, why not just put the story up as soon as it landed?
As it happened, the trading halt was lifted at 2.04pm and some time after that a news story appeared on the site credited to NZPA and Reuters reporting the company's shares rose 3 per cent to $8.40 "after the trading halt was lifted".
NZX DISCIPLINE CHASES BROKERS
A week ago the Securities Commission issued its report on how well New Zealand Exchange was regulating its markets, overall giving it a pretty good mark.
Early this week, NZX Discipline which deals with suspected or alleged breaches of listing rules referred to it by NZX Regulation, issued its own report.
Chairman Don Trow was pleased to note no serious breaches of market rules by listed companies but "there were a small number of instances of behaviour that were well and truly below the standards required by the NZX participant rules".
That's the brokers he's talking about.
Of course you've got Access Brokerage among those. It was handed a $750,000 fine by NZX Discipline only to be paid if Access' creditors were repaid in full. Given the ongoing litigation between NZX and the Bank of New Zealand, which met much of the shortfall in Access client funds, that probably isn't going to happen any time soon.
The report gives outlines of the cases, findings and penalties from NZX's hearings but many of the names are withheld, for reasons including "disproportionately severe prejudice associated with publication".
It's still fun trying to work out who is who though.
Elsewhere in the report, which is available on the NZX website, we learn that fines and costs actually received by NZX Discipline during the 12 months to December last year were $401,022, quite a step up from the $174,750 received in the 18 months to December 2006.
Does this suggest brokers are being more than twice as bad?
NOT WAVING, DROWNING
The failure of National Finance 2000, whose auditors were this week pinged by the Institute of Chartered Accountants for their role in the debacle, marked the start of the first wave of finance company collapses just over two years ago. Provincial Finance and Western Bay Finance followed afterward then things went fairly quiet.
Bridgecorp's receivership in May last year sparked a second wave as investors shied away from finance company debentures. By the beginning of this year the flow of failures slowed to something of a trickle, with firms like the two MFS-related companies stumbling due to a unique set of problems.
Commentators scoffed somewhat when the boss of failed Lombard Finance and Investments Michael Reeves attributed his company's default on obligations to investors largely to struggling property developers in turn being unable to repay their loans from the company. It was, he said, "a systemic failure of an entire industry".
Critics say Lombard was in fact mismanaged, but it's become increasingly clear that Reeves had a point.
There is a severe lack of finance available for property developers and a lack of buyers for completed projects. That along with further plunges in firms' reinvestment rates is what is largely causing this fresh third wave of collapses.
With Dominion, St Laurence and Dorchester calling time on their fundraising and lending activities in the space of a week, it looks like the floodgates have well and truly opened now.
Predictions among some pretty clued up industry figures are that this third wave is going to basically wipe out all but the top finance companies. Some are even talking about the possibility of a fourth wave ...
A ROCK AND HARD PLACE
It is worth noting that the likes of St Laurence and Dorchester appeared to have at least recognised the game was up before things got too hairy, rather than gambling for survival by desperately tapping investors for fresh cash.
Interesting too, to see companies increasingly preferring to call their requests for breathing space from investors a "scheme of arrangement" or a "scheme of repayment" rather than that altogether more doleful sounding "moratorium".
While Lombard's trustee turned down its moratorium plan, pretty much all those that have been put to investors have been approved. Even Octaviar Pacific's plan was approved, although in that case, given the parlous state of its parent company and largest debtor, the prospect of even a few scant but immediate cents in the dollar used as a sweetener was probably as good as it's likely to get.
Stock Takes has recently heard two plausible schools of thought on the subject of moratoriums. The first is that these types of deferred payment plans are in many cases best for investors because there is probably no one better placed to manage the company's receivables book than its existing management who are not going to charge an extra fee for doing so, like receivers.
The other view is based on the premise that the property market is only going to get worse and the best outcome is likely to be achieved by hard-nosed receivers swiftly conducting a fire sale of assets. A tough choice.
YOU'LL PAY ME HOW MUCH?
An illustration of how desperate things are getting for property developers came across Stock Takes' desk in the form of a flyer touting for funding for a hotel and residential development in a prominent spot close to Wellington's waterfront.
The developer is seeking to raise $15 million in second mortgage funding with a minimum $500,000 investment and a term of three years.
The return? 18.25 per cent per annum but they call it 24 per cent p.a. "effective interest rate" as interest is capitalised.
Stock Takes assumes this reflects what the experts are calling a "repricing of risk" currently taking place in financial markets.
PUMPKIN PATCH HOPING FOR BRIGHTER FUTURE AFTER UNKIND YEAR
Briscoe Group chief executive Rod Duke likes the company, but the market hasn't been so kind to Pumpkin Patch this year.
It's been the second-worst performer on the NZX-50 this year, and that's saying something.
Yesterday in a copy of a presentation given to investors in Hong Kong and Singapore this week the company said its debt had more than doubled in the last year largely due to an increase in inventory as sales in Britain and US continue to weaken.
The company said its debt was expected to be at least $85 million at July 31 from $37 million a year earlier.
All of this is not entirely surprising to Goldman Sachs JBWere analyst Rodney Deacon who talked about the company's rising debt and inventory levels in a research note early this month.
At that time, despite those factors, Deacon saw "considerable upside" on a 12-month view of the company, with its shares trading at considerably less than his discounted cash flow valuation of $2.06.
In this week's presentation, Pumpkin Patch said it expected debt next year to be reduced to $70 million thanks to cash generated by a reduction in inventory "via normal inventory management techniques".
Lower debt levels means lower interest costs suggesting some upside on the bottom line. But Deacon yesterday said the key question not answered in the presentation was whether inventory was going to be reduced at the expense of margin. "That would suggest that any reduction in the interest cost would be offset."
Pumpkin Patch shares closed a cent higher at $1.53 yesterday.
