KEY POINTS:
Prime Minister John Key's investment banking style is to the fore as he keeps watching brief on which - if any - of New Zealand's most stretched companies might become a candidate for Government financial assistance.
Already he has been on the phone to Fisher & Paykel's John
Bongard seeking the real oil on the whiteware manufacturer's plans to overcome its balance sheet problems. He has sought explanations from Fonterra senior management in response to competitor claims its online auction system is driving milk powder prices down and endangering the outlook for the entire dairy industry, and he has kept an eye out on
the difficulties that PGG Wrightson's boss Craig Norgate is having to surmount as critical funding deadlines loom.
Though Key stressed to me at his Monday press conference that he had not spoken directly with PGG Wrightson, my soundings indicate he is well across the difficulties the rural services company has experienced since it hit funding problems late last year.
The Treasury has also run the ruler over a number of NZ blue chips and suggested the type of principles the Government should rely on when considering any potential applications for assistance.
Key's activist approach is a far cry from the prime ministerial style used by some of his predecessors like David Lange (Labour) and Jim Bolger (National) when they were confronted with the prospect of major Government hand-holding operations and bailouts during the fag-end of the 1980s and early 1990s.
It would be hard to imagine either Lange or Bolger lapsing into banker-speak as Key did at his press conference when he precisely defined the impact of mark-to-market rules which had resulted in F&P's recorded debt blowing out to 43 per cent in January in response to exchange rate movements. Net debt is now forecast to reach $570 million.
But F&P has not asked for a Government bailout.
What Bongard did canvass with Key is F&P's intention to seek a cornerstone shareholder, flick some assets and address other capital-raising options.
To that end First NZ Capital has been brought onboard alongside Deutsche Bank to advise the company.
There has been plenty of hype - some of its sparked by NZ Shareholders Association chairman Bruce Sheppard - pleading F&P's case as an "iconic" NZ company and thus a suitable candidate for Government rescue.
But the F&P saga has a considerable time to play out. There is no reason at this juncture for the Government to get out its chequebook when potential cornerstone stake buyers have yet to be canvassed.
Under the Overseas Investment rules any foreign buyer seeking a cornerstone stake in F&P would likely need Government approval under rules dealing with overseas investments in significant business assets. These come into play when the potential stake amounts to more than 25 per cent of the company's listed securities, and if the investment value is more than $100 million.
It seems crystal clear the Government will not stand in the way of an offshore acquisition of a cornerstone stake in F&P. As Key put it, "If the (application) was in breach of overseas investment rules we would have to consider a number of factors ... If turning it down means the loss of 1600 jobs and the collapse of a company like F&P that would be unacceptable to me."
This suggests Key and Bongard have a tacit understanding that if a potential foreign owner stacks up on the usual criteria - good corporate citizen and adds value to the investment - any deal will pass Government muster. China's Haier and South Korea's LG are just two Asian companies in the whiteware space that could be potential investors.
This might not suit those who are barking for the Government to intervene to keep F&P "New Zealand-owned", but is there really any other credible option?
This is no time to repeat the jingoistic nonsense that led the previous Government to scuttle Air New Zealand's plan to bring Singapore Airlines in as a cornerstone shareholder.
Nor is F&P at the point of desperation that Air NZ reached after months of fruitless recapitalisation negotiations with the Labour Government.
But if sentiment did ripen against an offshore sale, there is also the option to bring the New Zealand Super Fund into play if need be.
Key has indicated that while the Government does not want to be a "primary banker" for stretched companies, it continues to keep its powder dry.
Arguably two other companies which will be in the news in coming weeks also share F&P's iconic status.
PGG Wrightson's interim result will be out next week.
The market will be seeking reassurances from the company that it has funding plans in place.
Of major interest - and this factor disturbs market watchers - is how come Norgate got caught out by launching an unconditional bid for 50 per cent of Silver Fern Farms without having all the financing in place.
At their meeting in Wellington last week the Federated Farmers board spent considerable time talking through the issues.
Federated Farmers president Don Nicolson is one of several board members who believe Silver Fern Farms should hold PGG Wrightson to full financial account for its failure to cement the $220 million merger.
That is unlikely to happen. But for farmers like Nicolson who went through the creative destruction of the 1980s the notion that Norgate should be let off the hook is seen as soft-headed.
In March, Fonterra will also report its interim result for the six months to July 31. Fonterra's decision to mop up $800 million in unsecured bonds at 7.75 per cent has raised eyebrows as no explanations have yet been given as to why the company has gone down this expensive fund-raising route.
The real unknown facing Fonterra's farmer shareholders is the level of the (final) May 2009 fair value share valuation. If this is the same or less than the interim (December 2008) valuation of $4.47 a share, then farmers will face a considerable immediate loss of value in buying their shares.
It is an issue that was not canvassed openly at the press conference to announce Fonterra's payout level but is of critical importance to farmers and their bankers.
