Gaynor on Wednesday: Bumpy ride for investors

Shotover Jet


Shotover Jet is a perfect example of the two-tier nature of the New Zealand sharemarket. While minority shareholders have suffered large losses, several directors have left the company with huge profits.

In 1993, the Queenstown-based company bought $13 million of assets from Armada Holdings, a company associated with Shotover Jet's former managing director Jim Boult. The consideration was $4 million in cash and 9 million $1 Shotover Jet shares.

The purchase consisted of $2.7 million of hard assets and $10.3 million of intangibles. These were mainly brand names, river rights and other goodwill. Little information was given on the historical performance of the acquired assets.

Immediately after the acquisition, the public was issued 7.1 million Shotover Jet shares at $1 each. The company did not achieve its prospectus forecasts.

In 1995, Shotover Jet bought Rotorua-based Rainbow Springs from the Chartwell Trust for $13 million. The consideration included $6.5 million of notes that could be converted into cash or 5.91 million ordinary shares.

Armada obtained pre-emptive rights over the convertible notes and any ordinary shares issued on conversion.

The Rainbow Springs acquisition also failed to meet forecasts and Shotover Jet's share price slumped.

In 1997, 2.5 million new shares were placed with Armada at 40c each and Armada bought a further 2.8 million shares at 45c, to bring its total holding to 14.4 million Shotover Jet shares.

The wheeling and dealing began in earnest a year later when Shotover Jet's shareholders agreed that Chartwell's notes would convert into 16.25 million instead of 5.91 million ordinary shares.

Chartwell agreed to sell the 16.25 million new shares to Hokonui Investments for 37.5c a share.

John Ward, a Shotover Jet director, was a Hokonui shareholder and Hokonui agreed to sell up to 2.52 million of these new shares to Armada.

Under Stock Exchange listing rules, Hokonui and Armada were related parties because Graeme Hill was a common director and was also on the Shotover Jet board.

In mid-1999 Ngai Tahu Investments bought Hokonui's shareholding for $1.05 a share, giving Hokonui a profit of more than $12 million.

A year later, Armada sold 2.16 million shares to Ngai Tahu at 72c a share and last month it sold its remaining 13.2 million shares to the Maori group for 99.3c each.

Mr Boult resigned as Shotover Jet's managing director three weeks ago.

Shotover Jet has accumulated losses of $18.2 million since listing; Ngai Tahu Investments now owns 80.5 per cent of the Queenstown company and the different shareholder groups have achieved the following returns:

* Armada received its original 9 million shares in return for intangible assets and bought 7.5 million more shares, including 2.16 million from Hokonui, at an average price of 41c. Mr Boult's company Armada sold its shareholding to Ngai Tahu at an average price of 96c a share.

* The vendors of Rainbow Springs received 16.25 million instead of 5.91 million ordinary shares for their convertible notes.

* Hokonui made a profit of more than $12 million on its eight-month investment.

* Ordinary shareholders, who bought their original shares at $1, are sitting on large losses as the company's share price struggles to stay above 50c.

Unlike Chartwell they have received no concessions, have been granted no pre-emptive rights and did not participate in the Ngai Tahu offer.

Who said individual investors freeload on the expertise of directors and controlling shareholders?

Property for Industry


High-profile economist Gareth Morgan is a director of Property for Industry (PFI).

He addressed shareholders at last year's annual general meeting, and was paid $3097, in addition to his normal director fees for doing so.

Lucky Dr Morgan. But is this the best way for PFI to spend its money?