Tranz Rail vague on solutions to 'short-term liquidity situation'

By PAM GRAHAM

Tranz Rail released third-quarter earnings yesterday in line with its April 7 profit warning, but a solution to its cashflow woes remained subject to a "range of options".

The company's shares plunged to 30c last month when it failed to stop Standard & Poor's from revealing how hard it would be for Tranz Rail to meet lease and debt repayments this quarter.

"As things look today we've got steps in place that should get us there," said John Loughlin, the director who took over as chief financial officer from Wayne Collins, as the shares plunged.

A selldown by Colonial First State, once a 12.8 per cent shareholder, had also put pressure on the share price last month. The shares closed at 45c yesterday.

Managing director Michael Beard said: "I think overall we are in the same place that we have been all along: the underlying performance is improving and we have a short-term liquidity situation."

The company can sell assets, do a deal with the Government or find new investors to solve a problem Loughlin summarised as a case of having long-term assets and short-term funding.

The latest yesterday was that a $500,000 asset sale had been agreed, the company had had "indications of support" from existing shareholders and a private placement to US debt investors was still an option.

"It is a matter of working out which of the options are viable and which combination works for the company," said Loughlin.

There was a no comment on the number of indicative bids the company had received for Distribution Services Group, the trucking and logistic business. When asked if a sale of rolling stock to Carter Holt Harvey could be achieved by selling the assets to a third party who would then lease them to Carter Holt, he said "we're right in the middle of that transaction".

The sale of Tranz Metro, the Wellington passenger business, was the least likely and the sale of Wellington Railway Station was dubbed complex.

Loughlin said the company had a package of assets for sale and "all the signs are we will achieve what our plans are, given that package".

As for new funding, approaches from overseas were going into the mix. A private placement in the US debt market was more difficult after the downgrade by Standard & Poor's but not impossible.

"The investors in that market tend to form their own views and make their own judgments," Loughlin said.

"It may be that investors coming in will look not so much at the past but at the potential that can come out if there is a credible story there."

A refinancing of the US funding of the Aratere ferry lease would release $30 million held in an overseas bank account as security.

The Government was being kept informed, and selling the rail network was one of the options that had always been canvassed.

"They have not made any offer to us at all," Beard said.

The company reported a $19.1 million profit from trading in the third quarter, which was down $10.2 million from forecasts in the November prospectus for a rights issue and $4.7 million up on last year. Revenue of $157.2 million was $11.3 million below forecast.

The bottom-line profit in the quarter ended March was $16.8 million, which was $7.9 million below forecast. Tranz Rail said drought reduced milk and fertiliser production, the Kinleith strike was costing it "tens of thousands of bucks a day" and problem with ventilation in the Otira tunnel reduced coal volumes. It removed a reference to congestion at Lyttelton Port in its April 7 profit warning after the port said there had not been any.

The Cook Strait ferry business had been affected by competition and the Distribution Services Group had traded in line with forecasts.

The company is forecasting a $47 million operating profit in the full year, up from $26.8 million last year. That is before one-off items and gains the high New Zealand dollar is giving it on US lease payments.

"We have made progress but are aware that we do need to make greater gains in the future," Loughlin said.