Stock Takes: Kiwi dollar continues roller-coaster ride

Strong Kiwi

It's all go in the currency world at the moment. The New Zealand dollar is still within striking distance of a post-float high of US82.35c, set in March 2008, and has been going through something of a roller-coaster ride.

This week's March National Bank business survey went some way to explain why. The survey revealed a huge bounce-back in business confidence from the earthquake-driven hit it took last month.

Nationwide net confidence roared back into positive territory, at plus 14.2, from minus 8.7 in February. So not quite fully restored to pre-earthquake levels, but strong enough to infer GDP growth in the range of 3 to 4 per cent this year, BNZ said in its analysis of the survey.

Enter the redback in currency arena

China's currency is being ushered into the mainstream, but at an inexorably slow pace given the People's Republic is now the world's second biggest economy.

HSBC, formerly The Hongkong and Shanghai Banking Corp, said there are signs that the renminbi (RMB), or "redback", could become fully convertible as early as 2015 or 2017.

This is earlier than previous estimates, which suggested that full convertibility would not happen until at least 2020, HSBC said.

"As recently as the beginning of March we were working towards the RMB being fully convertible by 2020," Cath Henry, HSBC's head of global payments and cash management, said. "However, in light of this new information, it appears the target date may be brought forward," she said.

"This is an exciting time in the currency world and we strongly recommend that New Zealand importers and exporters develop their understanding and start trading in RMB now rather than assuming it won't impact them," she said.

Dealing in RMB can be tricky, but once it becomes convertible, people will be able to change their RMB into NZ dollars without any official restrictions, making it lot easier for importers and exporters doing business with China.

Convertibility is still a long way from a floating exchange rate, which is what the rest of the world - the United States in particular - wants China to embrace.

There are however increasing signs of a thaw. The People's Bank of China and the Reserve Bank of New Zealand this month established a reciprocal currency arrangement to support the settlement in RMB of trade transactions between New Zealand and Chinese businesses.

LIC in the spotlight

The Hamilton-based farmers co-operative Livestock Improvement Corp is a strange beast.

While the company is wholly owned by farmers, its shares nevertheless trade on the NZX's secondary board. Public participation in this company is zilch, despite it being a listed entity, but its profile has been raised because of its role in partly bankrolling the Agria-PGG Wrightson deal.

Speculation is mounting that some sort of break-up is on the cards for PGG Wrightson, which has an old-style conglomerate structure, with interests ranging from real estate to irrigation systems. Livestock Improvement has been clear that it is only interested in PGG Wrightson's agritech businesses - seeds, agrifeeds and grain and not the overall business.

Livestock Improvement's a shares, which can only be bought and sold by co-operative members, currently trade at $3.65 - their highest point in a year.

Livestock Improvement confirmed its support for the Agria/New Hope/Ngai Tahu Holdings partial takeover offer for a 50.01 per cent shareholding in PGG Wrightson, through a $10 million loan to Agria Singapore.

It looks as if Livestock Improvement's loan is simply a way of putting its hat in the ring, in the event of PGG Wrightson being broken up.

However, a break-up would need to gain support of 75 per cent of PGW's voting stock. Agria and co have made their takeover offer for 50.01 per cent of the stock unconditional.

The latest information is that the acceptances received would take Agria's shareholding to 77.15 per cent.

It would therefore appear that achieving sufficient ownership to initiate a break-up would not seem to be a problem for Agria and its partners.

Contact issue

Contact Energy has announced a one-for-nine pro rata renounceable entitlement offer of new shares at $5.05 a share - a 13.8 per cent discount to the share price at market close on Wednesday and a 15.4 per cent discount to the three-month volume weighted average price of its shares.

Contact plans to raise about $350 million from the offer, which will be used to strengthen its balance sheet for investment in growth opportunities, the first part of which is the 166 megawatt Te Mihi power station to be built by mid-2013.

The offer has the support of Contact's 52 per cent shareholder, Origin Energy, which has confirmed it will take up its entitlement.

Contact gave the green light to investment of $623 million on the Te Mihi geothermal station on February 22, and market-watchers have been anticipating the capital-raising details.

The new plant, which will allow the closure of part of the ageing Wairakei geothermal power station, will be completed by mid-2013.

Stock Takes understands that the deal was originally the preserve of Craigs Investment Partners and the Auckland branch of Deutsche Bank, working as one underwriter. But perhaps as an indication of the new look under the full ownership of its New York parent, Goldman Sachs has been added as the second underwriter for the issue.

Contact shares closed down 1c yesterday at $5.85.

New Tenon chief

Tenon has appointed Tony Johnston as its chief operating officer.

Johnston has more than 20 years' experience in international sales, marketing and distribution in the wood products sector. He was a senior executive of the company in its early stages of growth into the United States. He is an executive director of LumberLink, an international wood marketing and export company based in New Zealand. He replaces Tom Highley, who will leave Tenon in October.

Tenon, once part of the Fletcher Challenge empire, is involved in woodproducts processing, marketing and distribution business, focusing on the high value moulding and millwork markets in the United States. Tenon shares closed steady at $1.03 yesterday.

NZS takeover

NZ Farming Systems Uruguay, which was borne from PGG Wrightson, is also in the throes of a takeover. Singapore's Olam International controls 78 per cent of NZ Farming Systems and is offering to acquire the 22 per cent of securities it does not control at 70c a share. Under the Takeovers Code, Olam is expected to send to shareholders the offer in the next two weeks. NZ Farming Systems owns and operates dairy farms in Uruguay. Shares closed down 1c at 71c yesterday.

Whimp at it again

After a slew of newspaper articles and warnings from the Securities Commission, investors should by now be well aware of Bernard Whimp and his so-called "low ball" share offers. The latest one, for shares in The Warehouse, is pitched at $2.34 compared with yesterday's closing price of $3.60 - a 35 per cent discount.

Restaurant Brands says it has received a request from Whimp for a copy of its share register, so shareholders should be alert to a similar, outrageously low, offer.