Tower shareholders 'duped', says Sheppard

3.00pm - By ADAM BENNETT

Shareholders in troubled financial services company Tower Ltd have been misled for years about the company's true worth, Shareholders' Association chairman Bruce Sheppard said today.

"The issue for shareholders is that for many years they have been duped and deceived by a company that has followed generally accepted accounting principles which has delivered an outcome that is deceptive," he told NZPA.

Tower yesterday announced a fresh profit warning, a clean out of its books and plans for a capital raising to cut debt.

The news saw the company's share price plummet 37 per cent or 83c to a record low of $1.38. It recovered 5 cents today to $1.43.

Tower shares took a similar severe dive in November when the company announced a previous warning. Then, they had been trading at $3.55 and slumped in quick time to $1.70.

The company said yesterday it would report a half-year loss of more than $180 million although it would have an operating profit of $3-6 million.

Tower said it planned to raise new capital of $200 million which would be used to cut debt. Assuming a discounted rights issue, that will almost double the number of shares on issue diluting the value of existing shares.

Mr Sheppard said "generally accepted accounting principles" had allowed the company to carry "crap assets" in their balance sheets "which they should not have been carrying".

Mr Sheppard, whose Shareholders Association is a small shareholders' pressure group, said Tower had been carrying goodwill as "other investments" in its books for a number of years.

"This big write-off is five years of goodwill write-offs," he said.

"They have managed to hide this fact following generally accepted accounting principles for life assurance companies.

"How did the auditors allow them to carry $632 million of 'crap' in the balance sheet and not write it off?" he asked.

Mr Sheppard said the amount written off was equivalent to about 80 per cent of the company's net equity and the remainder of the company's assets, largely made up of tax losses and life assurance agents' commissions, were also "crap assets".

He said the company was essentially insolvent at the last balance date and furthermore, "at the end of the first quarter it was really insolvent because it had another $40 million dollar exchange loss".

Mr Sheppard said the company was under-capitalised and insolvent as at its balance date and the date of its last AGM "and it comes as no surprise to me whatsoever that they're going to put their hands into someone else's pocket for $200 million to shore up their balance sheet."

Mr Sheppard said Tower's board of directors "hoodwinked themselves into believing that their subsidiary companies and their net assets were worth more than their net asset backing and convinced themselves they were running a good business.

"Market commentators, and analysts and institutions looked at the headline operating numbers without actually looking at the balance sheet and everyone dropped the ball."

Mr Sheppard said Tower's' policyholders and investors were unlikely to be affected by the company's difficulties.

"It's fair to say that their brands at least in New Zealand are strong brands that will have enduring value.

"If they don't raise their $200 million they're going to be broken up and sold off, and as far as policyholders are concerned they're probably pretty safe."

Tower's announcement yesterday came after an external review and was forced on the company by the new continuous disclosure rules. No details of its proposed rights issue were released but chief executive Keith Taylor yesterday hinted at a pro-rata issue rather than a placement.

Details of the capital raising including any shareholder and regulatory approvals required would be announced together with the company's half-year result on May 28.

Chairman Olaf O'Duill said the review of Tower's financial position that has been undertaken and the proposed recapitalisation, would place the company "in a strong position for future growth and profitability".

Mr Taylor, who took the reins as acting chief executive in August last year when veteran CEO James Boonzaier was forced out in acrimonious circumstances said he hoped the restructuring would put an end to nasty surprises.

- NZPA