Tower defends GPG's underwriter role

By PAUL PANCKHURST

Troubled insurer Tower has sent a letter to shareholders defending an asset write-down and plans for a $200 million capital raising which stars corporate raider Guinness Peat Group as underwriter.

Explaining the plans, chairman Olaf O'Duill said yesterday that the board had believed it was "preferable, even necessary" to raise equity to repay debt of A$100 million ($114 million) in August.

That left market observers asking: "So, which was it? Preferable or necessary?"

O'Duill said Tower plumped for the GPG deal in the knowledge that the share price could drop "catastrophically" without a definite arrangement.

He said while other parties had expressed interest, there was "no formal assurance of a fully underwritten rights issue" within a timetable to offset the adverse effects of the half-year result to March.

Shareholders Association chairman Bruce Sheppard said the letter was Tower coming clean "in a PR-speak sort of way" and that, reading between the lines, the company had no choice but GPG.

However, Andrew Bascand, of institutional investor Alliance Capital Management, reacted differently.

The capital raising "probably needs to happen - but it's the mechanism by which it happens which is the issue".

"The letter says the board considered a number of alternatives. That means there are alternatives. The letter's got us thinking."

Tower shares closed up 5c yesterday at $1.60.

Tower would allot 50 million shares to GPG at $1.35 each, taking GPG to a 30 per cent stake. It would raise a further $135 million from issuing new shares at $1 each, with GPG as underwriter.

Critics say GPG will get control of Tower without paying a premium.

The $1.35 price per share compared with a closing price before the deal was announced of $1.46 and a net tangible asset backing of $1.26.