KEY POINTS:
As the credit crisis grinds on and even deepens, our listed corporates have taken a beating but that might have been worse, we are told, if they didn't have such strong balance sheets.
On the other hand, a number of market commentators told Stock Takes earlier this year
they expected to see at least some New Zealand corporates struggle to refinance debt at bearable cost.
Goldman Sachs JBWere analysts Bernard Doyle and Buffy Gill agree.
"The repricing of risk will have a long tail," they say in research published last week titled "The Sting Will Be In The Tail".
"For New Zealand corporates this means a higher cost and tighter availability of bank funding and non-bank funding, both via international and domestic retail channels, will be more difficult to source."
Early this week it would have been next to impossible, with credit markets offshore virtually coming to a complete standstill. The concerted efforts of the world's largest central banks should get things moving again but markets will be hobbling for some time yet.
Who's at risk?
Doyle and Gill took a look at who in the New Zealand market is most vulnerable.
Kermadec Property Fund and Pumpkin Patch were both bearing "imminent credit risk due to stretched coverage".
Kermadec stood out "as a high risk company in the current challenging credit environment" as it was small and had been reliant on debt for growth. Doyle and Gill say Kermadec's income streams have been resilient to date, but a $50 million facility was due to expire in early December.
"Management is clearly working to resolve this with its bank and it estimates a 35 basis point increase from previous margins."
Pumpkin Patch as at July 31 had $81 million of net debt via a rolling facility with the ANZ held in a number of small tranches with various maturities and rates.
"We see potential for an increasing margin over swap rates and accordingly upward pressure on Pumpkin Patch's interest costs." Kermadec shares closed steady at 57c yesterday, while Pumpkin Patch stock was 1c higher at $1.19.
Stocks with the potential for increasing credit risk were Delegats Group, Fisher & Paykel Appliances, PGG Wrightson and AMP NZ Office Trust.
Companies worth monitoring, "particularly if credit and/or macro conditions deteriorate further", bearing in mind the research was published a week ago, were Infratil, ING Property Trust, and The Warehouse.
Companies with credit related earnings risk due to higher funding costs included a subset of stocks already mentioned as well as Cavalier Corp, Nuplex, Property for Industry and Sanford.
Changes at AMP
New Zealand's largest private sector fund manager AMP Capital Investors is waving goodbye to head of investment strategy Leo Krippner who is taking up a research position at the Reserve Bank.
Krippner has served a couple of previous stints at the RBNZ but this time he gets the chance to indulge what he once called his "born-again bent for yield-curve analysis" which makes him sound far drier than he really is, but no less intelligent.
Replacing Krippner is another former Reserve Banker, First NZ Capital economist/strategist Jason Wong.
Stock Takes reckons that's going to make for some interesting exchanges of views among AMP Capital's top investment team.
Even fairly recently Wong has sounded pretty downbeat about the prospects for our listed corporates, pointing out their price to earnings ratios, even after recent falls, look a little stretched and prices may need to come back to reflect a more muted earnings environment.
On the other hand, AMP head of equities Guy Elliffe has for a while now been of the view that prices for at least some firms have come back sufficiently to reflect their likely level of earnings as we head into a big soft patch for the economy.
How solid the earnings forecasts these assumptions are based on is the crucial question Elliffe conceded earlier this week at AMP's quarterly investment update.
GPG in a bind
Elliffe also commented at the briefing that while merger and acquisition activity was likely to be muted in the present environment, he expected to see further "opportunistic" bids, such as OneSteel's Steel & Tube offer.
New Zealand companies are not just targets here, one or two have been the acquirers.
Fletcher Building this week bought out steel business Fielders Australia and Sir Ron Brierley's Guinness Peat Group which is suffering no debt problems having something like $1 billion in cash on hand, yesterday revealed it had acquired a stake in Ennstone, a regional aggregates and building materials business operating in the UK, US and Poland.
While the acquisition is a small one, many investors would probably prefer to see GPG realising investments rather than making new ones with Sir Ron recently announcing his intention to retire in 2010 when he says the company will make "a substantial release of value to shareholders".
GPG has been hit pretty badly in recent trading. Having lost about 30c since the start of the month it is now trading at its lowest in years.
It wasn't helped when it revealed key investment Coats' bid to reduce an EU fine for price fixing had failed.
If that contributed to the sell off then it looks like a bit of an overreaction, Coats was seeking to get ¬10 million ($22.5 million) knocked off a ¬20 million fine for its part in a sewing needle cartel.
While not negligible, the sum pales beside the ¬122 million fine it is facing for its part in a zipper and fasteners cartel lasting two decades until the late nineties.
However, one or two market watchers say Coats' failure to get the fine reduced doesn't send a good signal around how it will fare with the bigger penalty.
It seems to be all one way traffic for GPG at present even with the kiwi's dramatic fall early yesterday, which in theory should help the company's New Zealand dollar share price. The shares still fell, closing 1c lower at $1.04.
The word is GPG, like Fisher & Paykel Healthcare, SkyCity and Telecom have been hit in recent days in a sell-off by international investment funds who have been forced to liquidate some of their holdings due to redemptions by clients.
One local fund manager noted GPG is now trading at the largest discount to its net asset backing that he's ever seen.
Hildyard returns
Former long time Tower Asset Management chief executive Tony Hildyard has, after some time off following his departure, reappeared as the local representative of international fixed interest specialist Pimco (Pacific Investment Management Company).
Pimco manages about US$900 billion ($1.48 trillion) worldwide and about $2.5 billion of New Zealand cash.
Until recently its New Zealand operations were managed out of Sydney but given its desire to ramp up its local business, it hired Hildyard with whom it had dealt when he was at Tower.
Pimco was founded in 1971 in Newport Beach, California with just US$12 million in assets under management. These days it is owned by German insurance giant Allianz. Pimco's senior executives and advisers include former professional blackjack player, investment author and prominent philatelist Bill Gross and former Fed chairman Alan Greenspan.
Burger Meister On Board
Gourmet burger chain Burger Fuel, which had a less than sparkling sharemarket debut last year, may yet reward the patience of its smallish investor base.
Yesterday it announced the appointment of a new director, Alan Dunn, who has 30 years' experience working for McDonald's.
Dunn was chairman and chief executive of McDonald's in New Zealand from 1993 to 2004 before spending three years at the company's Chicago head office where he had responsibility for around 500 McDonald's across Sweden, Finland, Iceland, Denmark and Norway.
Dunn says Burger Fuel "has the potential to be a global success".
Dunn will be working with Burger Fuel chief executive Chris Mason and executive director Josef Roberts on "international franchising, operating systems, supply chain management and the refining of store formats for international roll-out".
