'Oversight' in Tranz Rail's accounts angers shareholders

By PAM GRAHAM

Tranz Rail said yesterday that its unaudited accounts for the six months to December 31, signed off by directors, did not properly disclose repayments due to banks as current liabilities.

It was an oversight, said chief financial officer John Loughlin, who is a director.

Some shareholders are angry that the company did not disclose it was paying its $83 million bank debt facility down to $55 million, either when the facility was announced on December 20, a day after its rights issue, or in the loan section of the current liabilities in its interim accounts released in January.

Current liabilities are due within 12 months. The company has said it rescheduled a $14 million payment to banks, due on April 1, that reduced the facility to $55 million, over three months.

The payments were material in the context of the company's tight liquidity position, a shareholder who declined to be named said.

Loughlin said the details of the facility were negotiated after the prospectus for December's rights issue was finalised.

"The prospectus was OK but we should have included the amortisation amount as a current liability rather than a term liability and that was an oversight in the preparation of the accounts," Loughlin said.

The company disclosed its new bank facility a day after it raised $66 million in a rights issue. The announcement said the facilities with BNZ, Citibank, National Bank and Westpac would be drawn on for general corporate purposes, including working capital and capital expenditures. They ran until June next year.

Loughlin said the company would review the process and the effects of the reporting issue and would "get it right" in subsequent disclosures.

The six months accounts are signed by chairman Wayne Walden and managing director Michael Beard.

Loughlin said it was not a case of changing a good current liabilities situation to a bad one.

The balance sheet for the six months to December recorded total current liabilities of $175.2 million, exceeding current assets of $130.48 million, illustrating Tranz Rail's serious liquidity problem.

The incorrectly disclosed $28 million debt payment would have exacerbated the comparison.

Loughlin also said that the board had sanctioned Tranz Rail's High Court lawsuit against Standard & Poor's.

The company tried to stop S&P publishing a credit rating downgrade, arguing it was based on confidential information. The case was settled and S&P has since downgraded the company's credit rating to CCC.

Tranz Rail's accounts for the year to June 30 had an unqualified audit opinion from KPMG. Documents filed to the High Court suggested there was a chance the accounts would be tagged, or qualified.

"In respect of the accounts last year the auditor gave us a very clear statement of what he required to be achieved in order to get a clean signoff and all those things were achieved," Loughlin said.