Clear message from Richina Pacific experience is that NZ shareholders are better off with Pyne Gould on the NZX.
The long-running Pyne Gould Corporation saga has taken a few more bizarre twists and turns in the past three weeks.
The George Kerr-controlled company has been suspended by the NZX for not publishing its annual report on time and the New Zealand Shareholders Association (NZSA) has suggested that the NZX consider delisting the company.
The NZSA's suggestion is understandable but it would be a far worse outcome for investors. This is because Pyne Gould is now registered in Guernsey and shareholders would lose the protection of the NZX Listing Rules, as well as our Companies Act, if it delists.
Richina Pacific is a good example of the potential negative consequences of a NZX delisting.
Pyne Gould, a long-established Christchurch company, listed on the NZX in March 2004 as a compliance listing. In other words, it listed without raising any new equity through an IPO.
Chairman Sam Maling wrote in the listing profile: "We are a long established public company with a proud record in providing both rural and financial services.
"Our rural services business separately lists as Pyne Gould Guinness Ltd and our financial services businesses are possibly better known to you through the Marac and Perpetual Trust brands.
"The listing of Pyne Gould Corporation brings you the opportunity to invest with these leading providers of financial and rural services in New Zealand. We have a proven track record in these businesses and the mix has served us well in the past."
The Pyne Gould Guinness shareholding contributed 31 per cent of Pyne Gould Corporation's earnings, Marac 63 per cent and Perpetual Trust 6 per cent.
Pyne Gould had a positive listing and its share price reached an all-time high of $5.40 in September 2005.
In 2007 George Kerr began to accumulate a shareholding in the company. Although disclosure statements were rather vague at the time it appears as if Kerr paid more than $40 million for his initial 10 per cent stake. This represented good value because Pyne Gould had net earnings after tax of $36.7 million for the June 2007 year.
Kerr was appointed to the Pyne Gould board in August 2008, just after the company announced net earnings after tax of $44.8 million for the 2007/08 year.
Pyne Gould had a major rights issue in October 2009 at 40c a share after reporting a loss of $54.4 million for the June 2009 year. Kerr contributed $36 million to the capital raising and purchased an additional $7 million worth of shares. In August 2010 Kerr owned 15 per cent of Pyne Gould at a total estimated cost of more than $80 million.
Since then the company has undergone a total transformation including:
• The establishment of Torchlight Investment Group which includes Equity Partners Infrastructure (EPIC) and the Torchlight Fund.
• It purchased 38 per cent of van Eyk, an independent Australian investment research business.
• Heartland was established through the merger of Marac, Canterbury Building Society and Southern Cross Building Society. Pyne Gould's shareholding in Heartland was mainly distributed to Pyne Gould's shareholders with the accompanying cancellation of Pyne Gould shares.
In October 2011 a consortium consisting of Backer Street Capital, which owned 19.8 per cent of Pyne Gould, and Kerr, with a 13.2 per cent stake, made a takeover offer for the company at 33c a share. Grant Samuel valued the shares between 49c and 57c, the bidder increased its offer to 37c but the independent directors maintained their "don't sell" recommendation.
Nevertheless, a large number of investors were attracted by the offer and the bidders ended up with a 76.8 per cent shareholding.
Subsequently, the company's interests in Pyne Gould Guinness (now PGG Wrightson) and Perpetual have been sold.
The NZSA has been highly critical of Pyne Gould's governance and has made five written complaints to the NZX and/or FMA in the past 12 months. These relate to a wide range of issues including accounting disclosures, the value of assets and information regarding legal action against Torchlight.
Pyne Gould director George Kerr.
The NZSA notes that Pyne Gould has been suspended twice for failing to provide audited accounts on time, it has been censured or fined three different times for governance and other listing rule failures and had three different auditors in three years. In addition, chief executive Kerr does not attend annual meetings.
NZSA is totally frustrated with Pyne Gould's governance, disclosure and accounting standards but is delisting the best option for shareholders?
Ironically, one of the NZSA's first high-profile campaigns was its attempt to stop Brierley Investments (BIL) from switching its primary listing from the NZX to the Singapore Stock Exchange.
NZSA chairman Bruce Sheppard attended the November 11, 1999, special meeting called to approve the move dressed in desert battle fatigue and a tin hat.
Sheppard's only victory at the highly charged four-hour marathon was the directors' agreement to grant two minutes silence because it was Remembrance Day.
The rest of the meeting was all one-way traffic.
Sir Selwyn Cushing and Sir Ron Brierley argued that the primary listing was being moved from New Zealand to Singapore because of the dismal performance of the NZX.
They also declared that BIL had to move its registration to Bermuda because the Singapore Stock Exchange would not accept a New Zealand incorporated company for primary listing.
The move to Bermuda meant that New Zealand resident shareholders with a BIL holding of more than $20,000 would have to pay tax on any unrealised capital profits.
In December 2008 Richina Pacific held an acrimonious meeting in Auckland to approve its delisting from the NZX. The company, which was chaired by Dame Jenny Shipley, had moved its registration to Bermuda in 2003. This meant that it was no longer subject to our Companies Act but still had to meet NZX Listing Rules requirements.
The delisting motion was passed, mainly through the support of overseas investors, despite strong opposition by New Zealand retail investors.
As part of the deal shareholders were told they would be offered 45.47c a share if they wanted to get out but this was never fully exercised because the company couldn't raise the necessary funds.
The NZX delisting and Bermuda registration means that:
• Richina Pacific is no longer required to have independent directors.
• Related party transactions do not have to be approved by independent directors or shareholders.
• The company is no longer required to hold its annual meeting in New Zealand.
• Shareholders may not "divulge or communicate to any person any confidential information concerning the business, accounts, or contractual arrangements or other dealings, transactions or affairs of the company which may come to their knowledge without the prior written consent of the company".
The company needn't worry about the last requirement because this columnist retained 1026 Richina Pacific shares to observe how this NZX delisting process works but hasn't received any annual report or information on director changes, if any, over the past six years.
I listened in to the company's 2012 annual meeting which was held by teleconference only. The reception was almost totally inaudible because the company was registered in Bermuda, its head office seemed to be in Malaysia, its main operations in China, its chairman dialled in from New York and the other directors phoned in from various parts of the world.
The governance and performance of Pyne Gould Corporation has been totally unsatisfactory but the delisting of the company would only make matters worse for shareholders, particularly as it is now registered in Guernsey and no longer subject to our Companies Act.
The clear message from the Richina Pacific experience is that New Zealand shareholders would be much better off if the company had remained listed on the NZX and met the exchange's disclosure requirements. Richina Pacific shareholders would clearly prefer a late annual report than no annual report at all.
