Fletcher looks to jump ditch

Ralph Waters says pulling out of the NZX is not a move he will take lightly. Picture / Glenn Jeffrey

New Zealand's third largest listed company and sharemarket darling Fletcher Building is weighing the benefits of shifting its head office to Australia - a move that would add to a raft of major departures from the NZX.

The $4.1 billion building products group, which has staged a remarkable recovery since it was separated from the old Fletcher Challenge conglomerate in 2001, has begun to look at the move because it believes it may boost its share price.

Fletcher Building chief executive Ralph Waters told the Business Herald: "Shifting domicile is not something we would do lightly. We would have to have compelling financial reasons to do so. [The study] is not about finding a cause to shift, it is about putting some facts around the conjecture."

It is believed Credit Suisse First Boston is helping Fletcher Building look at the question.

But Waters would not confirm the involvement of the investment bank, the duration of the study or its conclusions.

Fletcher Building's mere consideration of a shift abroad will send tremors through the sharemarket, already reeling from delistings such as forestry giant Carter Holt Harvey, Ports of Auckland, energy group Powerco and the possible departures of energy mainstay Contact and rubbish group Waste Management, among others.

Many observers say losses undermine the local capital markets. If the trend continued, large institutional investors, and many lawyers, accountants, bankers and brokers could follow, potentially making it harder for local companies to raise capital.

Only last week, ABN Amro research head James Miller and colleague Daniel Kieser published a note entitled "Branch economy", warning of the risks such departures posed to the NZX and the capital markets.

"The revenue lost [from NZX] as a result of the delisting of various corporates - Carter Holt at about $45,000 - is in itself not significant.

"What is significant is the flow-on effect throughout the industries supporting the NZX franchise."

They said although the NZX was a quality, well-positioned franchise, company departures were a key risk.

Others say good companies will never struggle to raise capital.

Although Fletcher Building has soared since it was listed separately, local investors have lamented that it still trades below Australian peers that it consistently outperforms.

Fletcher Building, down 13c yesterday to $8.77, implies a debt-free valuation of around 6.43 times this year's forecast trading profits of $808.1 million.

This compares with Australian rivals Adelaide Brighton and Boral that trade at 8.66 and 8.53 times respectively.

Investors have attributed the discount to a mixture of factors including overseas investors' perceptions, the cost of capital here and tax considerations.

A shift may correct those problems and stimulate interest and demand for the shares.

If Fletcher Building was listed on the ASX, it could be included in benchmark indices such as the S&P ASX 200.

Such a move would force Australian index trackers to include the share in their portfolio.

Residence in Australia might make it easier for the company to pass tax credits on to an Australian shareholder base, making the shares more attractive. (New Zealand shareholders, however, may at the same time lose these tax advantages.)

Meanwhile, Waters said a move could be accompanied by a share price fall as local investors precluded from investing overseas sold.

"If you look at the companies that have shifted before, it may have proved to be the right move but the benefits may not have occurred over- night. You have to bridge a period of a short-term likely fall in the share price for a long-term benefit."

Waters said the recent rise in the share price to as high as $9.16 had eased the imperative to move.

"I think we are a lot more comfortable where the the share price is today rather than where it was a short time ago."

Going, going

* Waste Manangement

* Contact Energy

* Fletcher Building

Gone

* Ports of Auckland

* Urbus Properties

* Vertex

* Carter Holt Harvey

* Powerco

* NGC

REASONS TO MOVE

Sound bites for Roger Kerr, Newstalk ZB:

* Stimulate interest among Australia's larger pool of domestic investors.

* Give Australian investors tax advantages enjoyed now by New Zealand investors.

* Boost Fletcher Building's profile on the world stage.