Gaynor: Cause for Air NZ optimism

By BRIAN GAYNOR

When will be the right time to buy Air New Zealand shares again? Can we learn anything from the last big government bailout - the Bank of New Zealand over a decade ago?

When the BNZ first hit the wall at the beginning of 1989, the government was its major shareholder with 87.1 per cent, while the public held 12.9 per cent. (The public had been issued shares in February 1987 at $1.75 each.) The first major recapitalisation in mid-1989 involved a seven-for-10 rights issue to shareholders at 70c a share.

The Labour government gave its entitlement to Capital Markets (Fay, Richwhite) and following the completion of the issue, the government's ownership fell to 51.6 per cent, Capital Markets had 30.5 per cent and the public 17.9 per cent.

After the recapitalisation, BNZ's share price rose to $1.25 on the expectation that the group's problems had been solved.

A year later, the bank was in trouble again, mainly because of bad debts in Australia, and the new National government announced a second major recapitalisation on November 6, 1990.

The bad debts were ring-fenced in a new company called Adbro. The government contributed $620 million to the recapitalisation of Adbro and the BNZ and Fay, Richwhite $100 million.

Minority shareholders were not asked to contribute.

BNZ shares fell to 43c immediately after the recapitalisation was announced. They then gradually picked up until the company was taken over by National Australia Bank at 80c a share in 1992.

The biggest lesson from the BNZ is that a recapitalisation on its own is not sufficient. A company also has to address the problems associated with its non-performing assets.

The BNZ only raised new capital in its first restructuring; it did not ring-fence its bad debts. When both issues were addressed in the second recapitalisation, the BNZ's share price gradually improved.

The good news for Air New Zealand shareholders is that the company is attempting to deal with its Ansett problems and the need for more capital at the same time.

A successful outcome should be good news for shareholders, although a share price recovery will be gradual and there won't be the enticing prospect of a takeover offer.

The greatest similarity between the BNZ and Air New Zealand is that they both experienced major problems in Australia and were slow to recognise and convey these difficulties to government.

The other observation is that a National government has been more willing to commit public funds to a bailout than a Labour administration.

Maybe this is because a Labour government is more sensitive to accusations of socialism.

eVentures

What is going on at eVentures? Why does the company take so long to announce its profit to the stock exchange?

Listed companies have 75 days to report to the exchange after the end of their financial year and half-year. For the year ending last December, eVentures made its announcement at 5.10pm on March 16, literally minutes before its deadline.

The cutoff date for the June half-year is tomorrow.

Why does a company with most of its assets in cash take so long to report to shareholders?

Capstone

Rubicon and a large number of former Fletcher Energy shareholders must be extremely relieved that they bailed out of Capstone.

The stock hit a high of $US98.50 on 31 August last year but has been on the skids since and closed at just $4.63 yesterday morning. Capstone's share price performance reflects the savage downturn on the Nasdaq market.

Fletcher Energy shareholders received one Capstone share for every 70 Energy shares and Rubicon ended up with 1.18 million shares in the California-based microturbine developer.

Rubicon sold 582,000 Capstone shares at various prices approaching the $US30 mark in March. The New Zealand group sold its remaining 594,000 shares at the end of May at an average price of $US31.07 a share.

Capstone shareholders in New Zealand have been offered two facilities to sell their shares. The first, in May, realised nearly $US30 dollars a share and the second, last month, $US9.69 a share. The latter figure is after deducting brokerage but before an administration fee of $NZ11.25 per shareholder.

Just six months ago, when Capstone's share price was over six times higher than it is today, several major United States broking firms were recommending the company as a strong buy.

How many of the company's former New Zealand shareholders have the courage to buy back in at today's low price?

Sky Network Television

Sky Network Television produces one of the most fascinating results each year. The company, which has reported more losses than profits, announced a loss of $42.3 million for the June 2001 year, yet the investment community responded positively.

The key statistics for Sky are subscriber numbers and operating earnings, not bottom-line profitability.

The good news is that digital subscribers increased from 162,000 to 264,200 and total subscribers, which also includes those on the UHF system, rose from 376,600 to 430,400.

The all-important churn rate (the percentage of residential subscribers that terminate their subscription) fell from 26.4 to 22.7 per cent.

On the negative side, programming costs increased 21.6 per cent because of the weak New Zealand dollar and the depreciation charge rose from $77.8 million to $95.4 million. This reflected the large increase in digital subscribers during the year.

Operating earnings (earnings before interest, tax, depreciation and amortisation) rose slightly from $74.1 million to $75.7 million.

The group's share price performance over the next six months will be strongly influenced by the movement of the New Zealand dollar against its US counterpart. If the NZ dollar remains strong, the pressure on Sky's programming costs will ease.

The company also has the option to raise installation charges. This will reduce its subscriber growth rate but would probably have increase operating earnings.

Sky will hold a special meeting of shareholders on September 24 to approve its $125 million capital notes issue. The annual meeting will be held on November 15 in Auckland.

* bgaynor@xtra.co.nz