Richard Inder: Shabby treatment needs explanation

An open letter to Trans Tasman Properties executive chairman Don Fletcher and the property firm's controlling shareholder SEA Holdings boss Jesse Lu.

Dear Don and Jesse,

Shame on you. Your treatment of minority shareholders - for as long as I have been watching you - has been pretty shabby.

But your plans disclosed this week to cut Trans Tasman in two and fold two-thirds of the assets into a Bermuda-based company listed on the London Stock Exchange's small companies market and the rest into a New Zealand company takes the biscuit.

Many Trans Tasman shareholders have long expected and feared such a move offshore. It is not foreign investment per se that has bothered them. I am prepared to bet that many of your shareholders also hold shares in Fletcher Building - a company that has successfully invested millions in Australia and further afield and yet only enhanced its reputation.

Instead, the worry is that you are making this move without adequately answering many of the complaints that have been levelled so far. You have heard the first of these repeatedly, but for the record:

Don, you are out of step with stock-exchange codes that recommend against a person holding the chairman and chief executive roles. You have said that your dual role is a board initiative and you have no opinion either way, but that seems like buck passing.

You have also invested in property development projects outside Trans Tasman. As you note, you are employed only part-time and you clear your private initiatives with the board. But in such a high-profile role, there is a strong argument that you should occupy yourself exclusively with the company you lead.

Jesse, you have failed repeatedly to front up to annual meetings. Yet you are driving the strategy of the company.

Trans Tasman has liquidated many New Zealand investments and invested the bulk of that cash in your home market of Hong Kong.

It may make sense. But many investors find it hard to stomach such a dramatic shift in strategy, especially in a property company that relies on knowledge of local customs and laws to turn a profit. It must be said that prior to the shift to Asia, Trans Tasman was a company with a history in Australasian property markets.

At the very least you should explain yourself.

Don, you have dismissed these criticisms as the outpouring of a vocal minority.

But professional investors also give you a wide berth for the same reasons. It is no coincidence that Trans Tasman shares trade at a discount to net asset backing of nearly 30 per cent and that this discount is one of the largest in your peer group.

The split of the company will reinforce doubts about governance.

A Bermuda-domicile for the company may, as you say, give you tax advantages. But whatever the merits, the Caribbean has a reputation for secrecy.

The plan follows assertions that you had no intention of quitting your New Zealand listing. For instance, in response to rampant speculation that you were planning to move you told a reporter at your May annual meeting: "SEA has not mentioned it. We are a New Zealand company and we are looking for more New Zealand assets."

Minority investors will be much less able to follow Trans Tasman's fortunes when listed in London. There is the time difference and the currency conversion that comes in the normal course of offshore investment.

But, the small companies market is also over-shadowed by the main board. Public scrutiny of these companies is weak because there is so much happening elsewhere. The balance of power is tipped in favour of large investors.

Finally, it is not even clear that the move will achieve your objective. You say players in London have a greater appetite for Asian investment and will be more open to capital raisings to fund your Asian adventures.

However, the chief barrier to your raising of capital here has been the weakness of your shares. No New Zealand investor would countenance new shares issued at a 30-per-cent discount to net assets and there is no reason to think players in the London market will take a different view.

Capital will flow to the company only if you close this gap. I suggest this should be your focus.

Yours faithfully,

Richard

P.S. It is fair to note your plan may allow local investors to divert their investment into the New Zealand-focused vehicle. This will satisfy few of the concerns over the management of Trans Tasman, but small shareholders will at least find it easier to keep tabs on their investment.