Tranz Rail fails to reach credit agreement with Citbank

2:00pm

Tranz Rail has failed to reach an agreement with Citibank, one of four lenders for a new banking facility.

Tranz Rail said today it had asked the NZSE to suspend trading in its shares for the rest of the day, or earlier if a resolution can be reached.

The national rail and ferry operator had hoped to tell the market today its new financial arrangements were signed and secured, clearing the way for a rights issue starting Monday.

But that fell through after Citibank refused to approve the arrangements unless the company broke a $179.18 million hedge in respect of its obligations for the inter-island ferry Aratere.

"The hedge contract is an important part of Tranz Rail's foreign exchange risk management policy and the breaking of the contract could have material effects on the company's risk position and costs," Tranz Rail said in a statement.

The other three lenders had given the arrangements the green light, the company said.

Tranz Rail is seeking to raise $66 million through a five for seven rights issue at 75 cents a share to meet obligations under a lease deal for the Aratere and to secure bank facilities.

Shares in Tranz Rail were placed on a trading halt this morning pending the announcement. They last traded at $1.28, unchanged on yesterday's close, after hitting an all-time low of $1.22 earlier this month.

The stock is the second-worst performing company on the New Zealand Stock Exchanges top forty index this year. In September the share price was $1.55 and the high for the year was $4.32.

Tranz Rail was forced into new negotiations on the Aratere lease, and to consider a rights issue, when its Standard and Poor's credit rating was seriously downgraded in September.

That triggered a clause in the lease with the ferry's United States owners, requiring a letter of credit. Coincidentally, the company's five-year banking facility ran out.

An all-clear on the new banking facility would have removed the uncertainty hanging over the company, which posted a $122 million loss in September and a weaker trading profit in the June year.

Earlier this month, the company forecast a $53.1 million operating profit for the year, down on the $55.8 million forecast in July. It said the difference was because of increased insurance costs, and restructuring costs.

- NZPA