Stock takes: Spinning it wide? not wide enough

Ma'a Nonu may do a sweet offload but Doug Graham's release missed the mark. Photo / Sarah Ivey

The Securities Commission's announcement yesterday that it had laid criminal charges against the directors of Lombard Finance & Investments was no surprise, coming two days after the directors' own statement revealing the fact.

Former chairman Sir Douglas Graham and fellow directors Michael Reeves, William Jeffries and Lawrence Bryant put out a statement on Tuesday saying they would vigorously defend both civil proceedings and criminal charges.

The statement was released before the Securities Commission had announced even the civil proceedings. Asked why the commission had taken two days to announce the criminal case, a spokesman said it was only filed at court on Wednesday.

But the decision was obviously made sooner than Wednesday, or the directors would not have known. The commission says it didn't tell them. So if the regulator didn't tell the directors, how did they find out?

HIGH POWERED

Graham and Jeffries, both former justice ministers and lawyers by trade, stepped down as directors of Lombard Finance & Investments in April 2008, a week after the company went into receivership. Jeffries has also distanced himself from the real estate industry.

He was head of the Real Estate Agents Licensing Authority, an organisation with the power to ban agents from the industry. But as Kristy McDonald, chairwoman of the Real Estate Agents Authority, said yesterday, Jeffries had long since ceased to have any power over the sector or its many thousands of agents.

"He's got nothing to do with the authority."

Spinning it wide? not wide enough

Sir Douglas Graham's statement was released via a distribution website called spinitwide.com.

Stock Takes wonders how well the site lives up to its name given the release wasn't sent to the Herald at all.

The site has a Wellington contact address but does not name the creative minds behind it.

However a little digging found the domain name is registered to a firm called GlobalPR whose directors are Sealord chairman Robin Hapi and former Cabinet press secretary Glenn Inwood.

Inwood resigned from the press secretary post in 2000 after Helen Clark banned him from attending a pro-whaling conference.

BUSY BEE

It's been a busy week for the Securities Commission, with the Lombard civil and criminal cases and the civil proceedings against resins and paint manufacturer Nuplex.

Stock Takes can't help wondering if the commission is trying to prove something ahead of the Government's decision on whether to have a single regulator.

NZX boss Mark Weldon has been quick to criticise the commission's structure, labelling it "quasi-operated by 12 part-timers who are market generalists, company directors and accountants".

But some have questioned why the NZX itself didn't act sooner over the Nuplex disclosure issue. The commission alleges that between December 22, 2008, and February 19, 2009, Nuplex breached its continuous disclosure obligations by failing to disclose to the market a breach of a banking covenant.

The breach was revealed officially on February 19 in response to an NZX share price inquiry. But the share price had already fallen from over $4.50 to $1.86 in just a few weeks before the query was sent.

News of the potential banking breach was already being widely discussed by the market after an analyst at First NZ Capital speculated that the company might be in breach of a senior debt cover ratio.

FASTER ACTION

Quick action by the NZX's Disciplinary Tribunal could have served as a sharp reminder to the company rather than the Securities Commission action which is likely to result in a drawn-out court case which could take years to resolve.

Nuplex boss John Hirst, who must be upset that the case has arisen in his last week before retiring, told the Herald the case would end up wasting a lot of taxpayers' and shareholders' money. But the alleged breach of disclosure is a serious issue. Nuplex shares closed down 5c at $3.35 yesterday.

FELTEX CASE

Disclosure is also the key issue over at the Auckland District Court with the Feltex trial. Five directors of the failed carpet-maker - Tim Saunders, John Feeney, Peter David Hunter, Peter Thomas and John Hagen - are charged with two breaches of the Financial Reporting Act.

Each faces fines of up to $100,000. The charges, laid by the Companies Office, allege the company's half-year accounts to December 2005 did not disclose that it was in breach of its loan agreement with ANZ. After floating in 2004 and raising $254 million, Feltex went into receivership in 2006. The directors have pleaded not guilty and the trial continues.

ROCKY RIDE

It's been a rocky ride for Pike River Coal shareholders in the past couple of weeks with the mining company's share price shooting up to touch a high of $1.20 on Monday after hitting a low on March 3 of 85c.

The company has already been subject to an NZX price inquiry which found nothing new, but it seems there must be more to it. One market commentator suggested some institutional investors might be taking money off the table by selling shares in Australian listed mining company MacArthur Coal, which has performed strongly.

Pike's long-talked-of rights issue is also expected to happen soon with some in the market expecting it to go ahead next week. All eyes will be on who the company gets to underwrite the issue.

Commentators believe it is more likely to be an investment bank than an institutional investor which could put pressure on the price. The underwriting is key to gaining the support of new capital from New Zealand Oil & Gas.

In February NZOG agreed to support a $50 million equity-raising for Pike at 29.5 per cent interest, subject to a rights issue being fully underwritten, and also to subscribe to a new convertible bond for US$28.9 million allowing Pike River to repay its existing Liberty Harbor bond facility. Pike River yesterday closed up 2c at $1.13.

TESTING THE MARKET

Telecom, in the news yesterday over an earnings guidance downgrade for 2011 and job cuts, could be a step closer to selling its Australian business AAPT.

The telco earlier in the week quashed a report in the Australian Financial Review's Street Talk column talking up interest from private equity investors in the firm, Australia's third largest telecommunications group.

Goldman Sachs was said to be filtering the approaches. But yesterday chief executive Paul Reynolds said Telecom did not see the business as core to its New Zealand operations and if a good offer came up which appealed to core shareholders it would be seriously considered.

At the end of December 2008 Asian telecommunications firm Pacnet was said to have been interested with reports at the time suggesting a figure of US$420 million. But by March 2009 Pacnet was already talking about a lower offer and Telecom has since made further write-downs of the business.

Telecom's half-year to December 31, 2009, results show AAPT earnings before interest, tax, depreciation and amortisation were up A$14 million to A$56 million but operating revenue fell 14.7 per cent to A$458 million.

It seems highly unlikely Telecom will make money on selling the business, which it bought in 1999 for A$1.5 billion at the height of the tech boom. Telecom's share price closed down 6c at $2.18 yesterday.