Stock takes: Slipping the leash

Shareholders Association chairman Bruce Sheppard has lambasted the Hanover-Allied Farmers deal. Photo / Kenny Rodger

The New Zealand business world's foremost firebrand, the Shareholders Association's Bruce Sheppard, has pulled out whatever stops he might have had to stoke outrage over the Hanover/Allied Farmers debentures-for-shares swap proposal.

In comments to the Business Herald's Anne Gibson this week and in his blog yesterday he excoriated the deal using his characteristically colourful turn of phrase. Sources close to the Hanover/Allied camps were yesterday dismissing his views, including calls for statutory management, as symptomatic of some kind of pathological disorder. But they would say that wouldn't they?

As far as advocates for the interests of investors go, what type of personality would you prefer? A meek declawed moggy or a vociferous mongrel, albeit one with considerable expertise in accountancy and business?

Some would argue that Bruce jumped the shark last year with his uncharitable comments about Hanover investors when they accepted the moratorium, but although Stock Takes doesn't agree with all of his views on the present situation, he makes some worthwhile points.

GIVE US THE FACTS

He is right to question whether Hanover investors would be better off exchanging their debentures, which are secured by Hanover's compromised but nevertheless still considerable loan assets, for equity - which has no such security - in Allied, a company with problems of its own as detailed in a report commissioned by Treasury a couple of months back.

But Sheppard also questions the independence not only of Hanover's present independent directors but also the report on the deal they have commissioned from corporate advisers Grant Samuel.

He says he has yet to see a Grant Samuel report that recommends shareholders ignore the board's own recommendations. Stock Takes can't say for sure Grant Samuel has never produced an opinion at odds with those writing the cheque, but we don't remember seeing one either.

Another far cooler head than Sheppard has made the point to Stock Takes - and we agree unreservedly - that what is required right now is for investors to be provided with genuinely independent, clear-eyed, comprehensive and comprehensible analysis of the merits or otherwise of the proposition for investors so they can make a truly informed decision.

Given it is their job to safeguard the interests of Hanover and United Finance's debenture investors, you might think the commissioning of such a report might fall to trustees Brian Connor at Guardian Trust and Louise Edwards at Perpetual Trust. Both trustees were conspicuously silent this week until Edwards issued a statement late yesterday saying her firm was committed to helping investors understand the implications of the proposed transaction so they could make a fully informed decision.

However Perpetual's Matthew Lancaster indicated to Stock Takes Perpetual was not at this stage planning to commission its own report. Guardian Trust's Connor did not return our calls.

BAYING FOR BLOOD

The noise about the Hanover/Allied proposal is deafening although entirely understandable.

Owners Mark Hotchin and Eric Watson have arguably done a disservice to their 13,000 debenture investors owed about $500 million by using the cash to fund what were identified by critics, even before the market turned to custard, as high-risk property investments. A significant number of the loans were to Hotchin and Watson's own property developments.

What's more, the returns from Hanover's lending, where the capital and interest was repaid, appear to have inordinately gone to the company and its shareholders, while debenture investors who provided the bulk of the cash and ultimately bore the risk were paid interest rates on a par with those on offer from far less risky finance companies.

Watson and Hotchin have conspicuously enjoyed the resulting wealth.

There was, for at least a couple of years before it hit the wall, concerns voiced over Hanover, which former chairman Greg Muir did his best to dispel. To reassure the public, Hanover used expensive TV adverts featuring the authoritative vocal talent of former news reader Richard Long and the soporific pop of The Feelers.

Now, Hotchin and Watson are copping it big time. While some are enjoying the prospect the pair may get their comeuppance, many investors facing the prospect of losing a big chunk of their life's savings want vengeance. Who can blame them?

NOW THAT'S CLASSY!

Stock Takes also believes Sheppard is entirely on the money when he notes the importance of a robust financial press and states that intelligent reporters should be encouraged. He goes on to list those he places in that category and Stock Takes would take no issue with the names, not least the inclusion of yours truly.

However it seems our colleagues at Stuff take issue with at least some of Sheppard's opinions - in the version of his blog that appeared on their website the buggers edited me out!

REDEPLOYMENT, RESTRUCTURING, RELOCATION - WHATEVER, ALLIANCE BERNSTEIN'S OUT OF HERE

Alliance Bernstein boss Michael Bargholz was calling it a "redeployment, restructuring and relocation" - anything but a withdrawal from New Zealand. But at the end of the day that's what it is.

One of this country's largest fund managers, with $4 billion of New Zealand cash under management and about $1 billion in Australasian equities, is upping sticks and its involvement in the local capital markets will be run out of Sydney and Melbourne at the cost of just over a dozen increasingly scarce specialised finance industry jobs.

The reaction from fund management industry figures Stock Takes spoke to was strongly tinged with despondency.

Stock Takes came away with the feeling that this is exactly the kind of "hollowing out" of the financial services industry commentators have feared for some time. Already on a downward track in terms of the proportion of our overall economy the sharemarket intersects, the global financial crisis has delivered a series of body blows.

Like many New Zealanders probably did, Stock Takes bristled when departing ASX chairman Maurice Newman last year labelled us and our sharemarket "internationally irrelevant".

The validity of Newman's call however, probably lies somewhere on a scale in between the poles of "right" and "wrong" although closer to wrong in our view. The news about Alliance, however, has given Newman's jab some retrospective sting.

In the context of the hammering they've endured in recent months if not years, some very sound if not inspired ideas as to how we might lend some material, sustainable vigour to our economy, capital markets and associated industries are clearly required.

HOARY OLD CHESTNUT

The Capital Markets Development Taskforce's report is due in less than a month.

It would be pleasing to see them come up with something with more wide-ranging benefits than the partial listing of state owned enterprises.

Talking to fund managers this week, once again the view coming through is that perhaps the most potent salve for our capital markets would be introduction of compulsory superannuation.

Stock Takes isn't convinced that compulsory super should be introduced primarily for the purposes of saving our capital markets from their current slide.

If we do go down that road it should be because it is deemed to be the best solution to another, perhaps even more pressing problem, that of providing for New Zealanders in retirement.

Whether it is or not probably depends on how it could be introduced without inflicting undue burden on a generation or two of New Zealanders who would otherwise be forced to save a larger proportion of their income for their retirement while at the same time funding those who are retired or about to retire.

It's a tough nut to crack, and like our tax issues, likely to involve some politically unsavoury solutions which demand our leaders show they too possess a pair of single seeded fruits encased in a hard shell.