Brian Gaynor: Brierley in the ring for another bruising

Sir Ron pops up again, but these days, no one's rushing to buy. File photo / Greg Bowker

Opinion

Sir Ron Brierley is a Jack in the Box as far as listed companies are concerned. Just when you think he has disappeared for good, he pops out again with a cheeky grin on his face.

This time he has resurfaced in the guise of ASX-listed Mercantile Investment Company, formerly known as India Equities Fund.

The big difference this time is that his fan base has almost totally disappeared.

Sir Ron's companies have disappointed investors again and again, and they are not diving into Mercantile Investment as enthusiastically as they leaped into Guinness Peat Group 20 years ago.

Sir Ron is a great starter but he leaves his companies in a mess because he buys big operating companies and doesn't have clear exit strategies.

Guinness Peat Group shareholders are now suffering the consequences of this as the company struggles to sell its investments and deliver a meaningful capital return to investors.

Sir Ron's first listed company, Brierley Investments, is now called GuocoLeisure.

It is based in Singapore and listed on the Singapore Exchange and the NZX.

It has a sharemarket value of $835 million compared with $5481 million at the end of 1986 when it was New Zealand's largest listed company.

The rise and fall of Brierley Investments (BIL) has been well documented.

The acquisition of Thistle Hotels in Britain was a major catalyst, as it essentially converted BIL from an investment into an operating company, a transformation that was not suited to Sir Ron and the rest of the BIL team.

Hotel operations are now 75.4 per cent of GuocoLeisure's total assets. Property developments are 11 per cent, oil and gas 8.7 per cent, gaming 4.1 per cent and other activities 0.8 per cent.

The property developments are the Molokai Properties in Hawaii and Denarau Properties in Fiji, the oil and gas is the Bass Strait Oil Royalty and the gaming is primarily the Clermont Club, an exclusive members-only casino in Mayfair, London.

GuocoLeisure seems to be going nowhere even though it reported net earnings of US$79.8 million for the June 2011 year, compared with US$49.5 million for the previous year.

The problem is that its hotel assets generate a low return and require ongoing capital expenditure.

The Bass Strait Oil Royalty was one of BIL's better investments, but it has been swamped by the underperforming hotels.

GuocoLeisure's relationship with its country of origin is now tenuous although it still has 31,200 shareholders, mainly small New Zealand holders.

Former National Government Cabinet minister Philip Burdon is deputy chairman, and Sir Ron still holds 1.8 million shares or 0.13 per cent of the company.

Two of Sir Ron's other listed companies, Industrial Equities Ltd (IEL) and Industrial Equity (Pacific) Ltd (IEP), also disappointed.

IEL was a small listed shell that Sir Ron used to backdoor list his 100 per cent owned Citizens and Graziers Life Assurance Company in 1966.

Twenty years later IEL was Australia's third largest listed company after BHP and National Australia Bank.

In 1990, it was acquired by Adelaide Steamship, which later became one of Australia's biggest corporate collapses.

IEP was originally the Shanghai Docklands, but Sir Ron changed its name when he gained control, which was after the company's operating assets had been nationalised, and then used it as BIL and IEL's international arm.

At one stage IEP was the star of the BIL/IEL group but it was eventually taken over by BIL in the 1990/91 year, with IEP shareholders receiving BIL shares through the offer.

Sir Ron took control of GPG in the early 1990s after he was dumped as BIL chairman and IEL and IEP were sold. He was joined at GPG by several of his old BIL mates, including Trevor Beyer, Gary Weiss and Tony Gibbs.

New Zealand investors followed him in droves and at one stage GPG had a sharemarket value of more than $2400 million compared with only $884 million today.

GPG's rise and fall, which has also been well documented, is remarkably similar to BIL's as the purchase of Coats was a significant change in direction.

Coats has been a huge drag, there have been internal disputes at GPG as there were at BIL and Sir Ron has been dumped as chairman.

GPG is in a poor state and most of its assets are difficult to sell.

The new board - chairman Rob Campbell, Mike Allen, Blake Nixon and Sir Ron - seem to be struggling, and the company's share price has substantially underperformed the market over the past six months.

It is trading well below brokers' NTA forecasts of around $1 a share.

GPG's reporting has also been disappointing. There were some discussions with the new board about reporting asset realisations and net asset backing per share on a monthly basis rather than on the quarterly basis it has adopted.

In addition there is no clear indication of its divestment strategies.

For example, is it holding out for $2 a share for Tower instead of selling its 35 per cent stake at around current market levels?

Most GPG shareholders now realise that the BIL/IEL/IEP/GPG model is flawed and would prefer GPG to sell Tower and other assets as soon as possible, at whatever price it can get, and immediately return cash to shareholders.

Meanwhile, Sir Ron has repeated his early 1990s performance. When he was dumped as BIL chairman he left for GPG but remained on the BIL board.

He has now been replaced as GPG's chairman and has moved to India Equities, but remains on the GPG board.

That is what makes him the consummate Jack in the Box - he keeps on popping up in almost the exact same way as he has in the past.

India Equities Fund (INE) was listed on the ASX in April 2007 after issuing 76.1 million stapled securities at A$1 each. The money was to be invested in listed Indian shares.

The portfolio's value increased to A$114 million by the end of 2007 but it plunged to just A$56 million six months later because of the global financial crisis and the Aussie dollar's gains against the Indian rupee.

In June 2010 shareholders approved the disposal of INE's Indian portfolio and the return of 90 per cent of the company's capital to shareholders.

Two weeks ago, the shareholders approved the acquisition of Sir Ron's private share portfolio, worth A$8.3 million, through the issue of 103.8 million new INE shares at A8c each.

This will increase Sir Ron's INE shareholding from 15.3 per cent to 54.3 per cent.

After the meeting, INE changed its name to Mercantile Investment Company Ltd.

Sir Ron's private portfolio, to be acquired by Mercantile, consists of five listed ASX companies - Copper Strike, Trinity Group, Australian Pharmaceutical Industries, ING Community Living and Trojan Equity.

Sir Ron has popped up yet again through a listed vehicle but there are several differences this time.

None of his former BIL, IEL, IEP or GPG mates seem to have joined him, and there hasn't been a mad rush by New Zealanders to buy Mercantile shares.

Why does Sir Ron, who was born on August 2, 1937, want to get back into the listed company sector where he has had so many disappointments and bruising confrontations?

Unfortunately, he has many of the characteristics of an old boxer who won't hang up his gloves.

And the vast majority of those old boxers never repeat the successes of their younger days.

Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management, which holds GPG shares on behalf of clients.