Tower shares slumped 35pc as market gets another nasty surprise

Shares in insurer Tower Ltd took a 35 per cent dive today after the company announced a fresh profit warning and a major capital raising.

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

It said it planned to raise new capital of $200 million which would be used to cut debt.

Tower shares initially slumped 41 per cent to $1.30 immediately in response to the profit warning but later recovered to $1.42 from yesterday's $2.21 close.

Tower shares took a similar severe dive in November when the company announced its previous warning. Then, they had been trading at $3.55 and slumped in quick time to $1.70. However, they started to recover as Sir Ron Brierley's Guinness Peat Group started building a 10 per cent stake -- the maximum allowed under Tower's constitution.

Tower said it intended to cut the carrying value of certain assets by $190 million including amortising $135 million of excess market value as a result of changes to accounting standards.

The fund manager and insurer in March reported it had made an unaudited net profit of $5.4 million in the December quarter, down 78 per cent on a year earlier.

The company revamped its board and management in the wake of a $75 million September year loss in 2002. At that time it said it expected to return to "normal" profits.

Tower said that 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".

Macquarie New Zealand investment director Arthur Lim said the warning was a surprise to the markets but added: "If you look at what's happened to AMP it shouldn't have been a surprise".

Since Tower's write-downs last year the wealth management industry had suffered a further deterioration, he said.

As well, pressure had been exerted on margins, especially in Australia where Tower was in a weak position as a second line player.

Neither chief executive Keith Taylor nor Mr O'Duill was available to comment.

Mr Taylor took the reins as acting chief executive in August last year when James Boonzaier was forced out in acrimonious circumstances after 12 years. After a long delay, Mr Taylor was confirmed as CEO.

Tower has had major problems with its Australian units, and like other insurers, because of sliding world investment markets.

"We've suspected for some time that there may be potential for writing down, particularly that Bridges financial group they purchased in Australia," Forsyth Barr Frater Williams broker Alan Wills told Reuters.

Tower's operations in Australia include its Bridges master trust business.

Tower has 175 million shares on issue so at $1.42/share is capitalised at just $248 million. A $200 million capital raising would come close to doubling the number of shares on issue.

Mr Lim said it was likely the issue would be at a deep discount.

"It will be a negative overhang on the shares until the issue is out of the way," he said.

According to Multex Global Estimates, analysts forecast a full-year profit of $48 million for the year to September 2003.

- NZPA