Mystery over $1.75b corporate option deal

By GEOFF SENESCALL

A major corporate sale is tipped to happen before the end of the year after an investment banker took out an interest-rate option for $1.75 billion yesterday.

The option was taken out as the kiwi dollar touched a new low of 40.10USc, following the Australian dollar and the out-of-favour euro down.

Broking sources said the option, with an expiry date of December, was bought by Credit Suisse First Boston.

The move indicates that someone who needs to borrow at least $1.75 billion is locking in a future borrowing in New Zealand dollars at yesterday's low levels.

Only five listed companies would be potential targets for such a transaction - Carter Holt Harvey, Contact Energy, Fletcher Energy, Telecom and The Warehouse.

Market sources suggest the most likely is Carter Holt Harvey, with a market capitalisation of $3 billion. Some of its large shareholders are believed to have been sounded out.

The move could see another player come alongside Carter Holt's 50 per cent shareholder International Paper.

The market has also been speculating on when International Paper might move to buy the 50 per cent of Carter Holt it does not already own.

Telecom could also be a candidate, given recent rumoured talks between the company and Singapore Telecom.

But with a market capitalisation of $10.6 billion, the option suggests just a partial shareholding.

Any move to buy more than 10 per cent would require Government and Telecom board approval.

Fletcher Energy also fits the size.

Royal Dutch Shell is expected to confirm its offer for the division after the Commerce Commission rules next week on the application to buy.

It is very unlikely that Warehouse principal Stephen Tindall would consider selling his shares.

As for Contact, any purchase of this size would require the energy company's 40 per cent shareholder Edison Mission Energy to also sell.

Furthermore, it is sitting on a 60 per cent loss on its current shareholding.

The low dollar is making New Zealand assets very attractive to Japanese and American buyers, whose currencies are appreciating rapidly against the kiwi.

Goldman Sachs' chief currency economist in London, Jim O'Neill, said yesterday that in a perfect world, the New Zealand dollar would be be trading at around 53USc.

He said the struggling kiwi would be carried back towards that figure by a recovery in the Australian dollar as early as next week.

"Because we are so impressed with the Australian fundamentals, and because of the relative valuation of both Australia and New Zealand against the US dollar, we think a year from now they will probably turn out to have been two of the best currency investments around," Mr O'Neill said.

The dollar could weaken further tomorrow if there is a negative surprise in the June quarter current account numbers, which show the difference between what the country spends and earns overseas.

A Bloomberg News survey of 13 economists tips the quarterly number to deteriorate, but to still be around 7.1 per cent of gross domestic product on an annual basis.