Watchdog sniffs around Kiwi Income unit deals

The Securities Commission is investigating whether any insider trading took place before the half-year result announced by Kiwi Income Property Trust this week.

A statement by the commission, which enforces NZX rules, yesterday confirmed the investigation had been requested by the exchange, but gave no details.

However, the Business Herald understands several complaints were made to the exchange by fund managers and investors over trading disclosed on November 18 by Commonwealth Bank of Australia, the ultimate owner of the trust's management company, Kiwi Income Property Ltd.

The trading took place up to November 15 and, on November 22, the trust announced a 15 per cent increase in after-tax profit for the half-year and projected a 5 per cent increase in dividend for the year.

Angus McNaughton, chief executive of Kiwi Income Property Ltd, said he believed the investigation related to units bought by the life assurance arm of CBA, Colonial Mutual Life Assurance.

"It's a separate entity inside CBA. I don't have anything to do with it," he said. "If there's going to be an investigation, we'll co-operate fully and we look forward to it being resolved quickly."

On-market buying - understood to be worth $46 million with a slight premium to the market price being paid - took CBA's stake in KIPT to 11.5 per cent, from 6.3 per cent. Colonial Mutual managing director Simon Swanson could not be contacted.

Kiwi Income Property Trust units were trading at $1.21 each on November 15 and have risen to $1.30 since the half-year result.

ABN Amro Craigs research analyst Mark Lister said the timing of the purchase was surprising.

"You would imagine that something like an interim result is planned for a specific day. It's not an unplanned surprise announcement," he said, prior to the NZX announcement.

Paul Glass, executive director of Brook Asset Management, said the investigation was a "disturbing development. We weren't one of the complainants but we are keeping a very close eye on the situation."

One market source suggested the deal was unlikely to be insider trading because it was so obvious and open. Before the NZX statement, some market observers had labelled the purchase an attempt by CBA to build a blocking stake in the trust to protect against a takeover. But others said it was, at the least, poor practice by CBA to allow one of its businesses to trade in units of another just before a results announcement.