PGC falls 29 per cent as investors cut back

Photo / Greg Bowker

Pyne Gould Corporation's shares, already trading at historically low levels, plummeted by almost 30 per cent yesterday as existing holders sought to raise funds to pay for new shares in the company's $270 million capital raising.

PGC shares slumped 20c or 28.75 per cent to an all-time low of 50c, half their price immediately before the company announced its capital raising plans last week, including a fully underwritten six for one rights issue at 40c per new share by which it will raise $237 million.

Craigs Investment Partners head dealer Bryon Burke said the fall reflected a cash flow issue for the company's predominantly retail shareholder base.

"They've finally clicked on to the fact that six times their holding times 40c is quite a lot of money and they're going, 'I'm going to have to write a big cheque here, let's raise some money by selling some ordinary shares so I don't have to put new funds into it'," Burke said.

"It's not uncommon - it's typical of how some retail investors react, although other stocks that have rights issues often have a large proportion of professional investors who obviously buy based on valuations and all sorts of other reasons rather than just pure cash flow."

Hamilton Hindin Greene's Grant Williamson agreed, noting many shareholders probably did not realise how much money they would need to remain undiluted in the company.

"They've been caught a little short and are doing a bit of selling on the market to then take up their entitlement."

However, he believed the weakness, on what was relatively light turnover, would be shortlived.

PGC shares have historically been tightly held, and while the volume traded yesterday was relatively light, it was many times usual daily turnover.

The shares begin trading ex-rights tomorrow and Williamson said that should see more buying interest.

"I think a lot of potential buyers are maybe just holding back and waiting for the rights. Historically that's normally the best time to buy into a company, halfway through their capital raising."

Another broker, who declined to be named, told NZPA existing investors, many of them long-term South Island-based shareholders, were struggling with the size of the rights issue.

"It is a very old register. The Christchurch families' share wealth has been absolutely devastated," the broker said.

While PGC was yesterday holding a meeting with investors in Christchurch, another local broker believed the company had done "a shoddy job" of selling the capital raising.