Gaynor: Watchdog gets by on crumbs

By BRIAN GAYNOR

Our Securities Commission survives on crumbs and tap water.

Its annual report shows that it received just $2.3 million from the Crown in the year to June 30.

The Australian Securities and Investment Commission (ASIC) has not released it annual report for this year, but it received $A132.7 million ($163 million) from its Government in the 12 months to June last year.

The New Zealand commission is remarkably sanguine about the shortage of money, but it influences the body's effectiveness.

The ASIC investigates a large number of complaints and has the financial resources to prosecute offenders.

The Wellington-based commission warns investors against investment shams, but does not have the resources to prosecute.

In December 1997, the Ministry of Commerce issued a discussion document on the commission and called for submissions. The review looked at the role of the commission and its funding.

Submissions closed in February 1998, but the National Government did not have the political will to make significant changes to the organisation's structure and financing.

Last May, the Ministry of Economic Development issued another discussion document on the commission and called for submissions by July 7.

This Government is far more committed to investor protection and is expected to introduce a bill into Parliament this year that will beef up the commission's enforcement powers and give it more money.



Blis Technologies

Monday was a red-letter day for the stock exchange with the listing of Blis Technologies, only the fifth new listing this year (the others were Rubicon, Richmond, Kirkcaldie & Stains and Wellington Drive Technologies).

Blis is a Dunedin company that is trying to commercialise bacteriocin-like inhibitory substances (Blis). Its first development is Salivaricin B, a product that prevents and controls streptococcal throat infections.

Professor John Tagg has collected Blis-producing organisms at the University of Otago for 25 years. Under an agreement dated last April 9, the new company has acquired all the rights to this collection.

It hopes to develop more commercial products from this source.

A driving force behind the new listing is South Island entrepreneur Howard Paterson, who owns 7 million shares (11.2 per cent) of Blis. These were acquired for a non-cash consideration equivalent to 1c a share.

Several other investors were issued shares for the same consideration, but a recent placement to New Zealand institutions at 73c a share raised $6 million.

The willingness of large investors to buy shares at 73c is a positive sign for the company, but its ultimate success will depend on the development of commercial products.

At yesterday's closing price of $1.10, Blis had a market value of $69 million.

As the company is not expected to generate any sales revenue for eight months and will have cash resources of just $4.1 million at the end of the period, this values the Salivaricin B development at $65 million.

This is a very demanding valuation when you consider that Genesis Research and Development had $61 million in the bank at December 31, several promising products in the pipeline and has a market value of $96 million.

Or Genesis could be extremely undervalued.

Natural Gas Corporation

Is Max Bradford, a champion of free enterprise, still a Member of Parliament? If so, why is he so quiet?

It would be fascinating to know what he thinks of his electricity industry reforms. He must be grinding his teeth as he watches the industry being progressively nationalised just three years after he aggressively promoted the Electricity Industry Reform Act 1998.

In the past few weeks Natural Gas Corporation (NGC) has sold its 406,000 On Energy (formerly TransAlta) residential electricity customers to two state-owned enterprises.

In other words, a huge number of electricity consumers in Christchurch, Wellington and on Auckland's North Shore have been forced to switch from a private to a Government-owned supplier.

NGC's involvement in electricity retailing has been an unmitigated disaster.

When TransAlta was acquired last year, it had already lost 11 per cent of its customer base because of tariff increases and poor customer service.

These losses have accelerated and NGC had only 406,000 electricity customers left, compared with a combined TransAlta/NGC total of 595,500 in late 1998.

The original TransAlta acquisition had to be approved by NGC shareholders because it exceeded the threshold of 50 per cent of the lesser of NGC's average market capitalisation or the gross value of its assets.

The sale of the customer base does not require shareholder approval because the total consideration, which has not been disclosed, is substantially lower than last year's purchase price and below the threshold where shareholder approval is required.

Carter Holt Harvey/Mainfreight



The main message at last week's two big annual meetings was "shareholders should be patient".

About 80 per cent of Carter Holt Harvey's total sales are in commodity-type products, and the five main drivers of the group's economic value - export log prices, Australian housing starts, New Zealand housing starts, export pulp prices and export linerboard prices - are all depressed.

The company reduced its commodity exposure when it sold out of Chile but its four new investments, which cost $850 million, are also predominantly commodity-focused.

The Australian housing market is showing early signs of a pickup, but the other four drivers of economic activity are still in a slump.

Carter Holt asked shareholders to be patient as it rode out the depressed economic conditions.

The hot topic at the Mainfreight meeting was the company's loss-making Australian operation.

Directors argued that the company had bought several loss-making operations in the past and all had been made profitable.

They were confident that the Australian activities will be profitable, but said it might take two or three years to achieve this.

Meanwhile, the June and December quarter results will be hurt by low returns from Australia.

* bgaynor@xtra.co.nz