Rough ride rolls on at Tranz Rail

By CHRIS DANIELS

Tranz Rail's nightmare journey continued yesterday, as the Stock Exchange asked the ailing rail company to "please explain" the latest slump in its share price.

Its request came atop speculation that the company might launch a heavily discounted rights issue to raise much-needed capital to avoid a downgrade in credit rating.

In response to the query from the exchange's Market Surveillance Panel - which asked if the company knew why its share price had dropped 10.4 per cent in one week - chief financial officer Wayne Collins outlined six possible reasons.

He said Tranz Rail's banking arrangements were due for renewal on October 16, and the company had been talking to its bankers for some time.

Collins said the market was also aware that ratings agency Standard & Poor's had placed Tranz Rail on a negative credit watch with a view to a possible downgrade.

"One possible effect of such a downgrade may be a requirement for the company to provide a letter for credit for the stipulated loss value (around $115 million ) in respect of the Aratere lease. If such an event should occur it will be taken into account in the company's negotiations with its bankers."

He said that "as is to be expected", Tranz Rail was considering its capital structure, but no decisions had been made about raising debt or new equity.

"The intended sale, particularly as to timing, of its Wellington Metro operations is an important factor in any consideration of capital structure."

Collins said the company's full-year operating profit would meet previous forecasts and the amount of writedowns would be "at the lower end of the range previously indicated".

Tranz Rail, which has taken some time to confirm when its annual results will be released, citing overseas travel by top executives, will report on September 12.

That is just one day before the expiry of the exchange's deadline for companies with financial years ending on June 30 to report annual results.

Tranz Rail last month took the unusual step of making a special briefing to the market about the state of its books in an effort to reassure investors.

It said it would record writedowns amounting to about $170 million in the current year.

It expects to post a $26 million net profit this year and an operating profit of $55.8 million next year.

Macquarie Equities analyst Warren Doak said a number of things were coming together at the same time to make life difficult for Tranz Rail.

It would certainly be looking at whether it could issue more shares, but it could achieve its aim of lowering debt, and thereby avoid a ratings downgrade. it might also be able to do this by re-organising its debt during negotiations with the banks.





Yesterday's request to Tranz Rail from the surveillance panel is the second in less than a month. The panel is already looking into two complaints that the company withheld information from investors .

The complaints - one from an individual and the other from the Shareholders Association - alleged that it failed to provide the market on a timely basis with relevant information known to its directors and former major shareholders.

The complaints have also been referred to the Securities Commission to see whether the company complied with the exchange's listing rules.



Tranz Rail's share price has been dropping since March, when it traded at $4.24. Yesterday the shares ended the day down 6c, at a record low of $1.76.