Hangovers plentiful after 2012 knees-up

CHALKIE - TIM HUNTER
Last updated 05:00 19/12/2012

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OPINION: In a few days the NZX will call last orders and topers at the 2012 trading bar will stagger off to detox at some waterfront location with dodgy mobile coverage.

They have had quite a party. Some will wake up wondering where all their money went, others will have bruises, grudges or love bites, and a few will be spending more time with yacht brokers.

As they regroup for bloody marys and eggs benedict the morning after, Chalkie reckons certain incidents may crop up in conversation.

A central figure in several of them is likely to be George Kerr, Pyne family scion, majority owner of Pyne Gould Corporation and wheeler-dealer extraordinaire.

There was the time, for example, when Kerr's PGC approved lending of $28 million from a fund run by one subsidiary to a fund run by another. It sounds bland when you say it like that, but the lender was a low-risk cash fund for conservative clients of stuffy Canterbury institution Perpetual Trust, while the borrower was Torchlight, a private equity investor in distressed property assets part-owned by PGC itself.

Kerr said the lending was "interfund". The Financial Markets Authority (FMA) said it was "related party" and ordered it paid back pronto.

Then there was the time Kerr unveiled his "Project New Tulip" strategy, part three, which aimed to make money from the burst finance company bubble by investing in litigation funds to sue directors, auditors, trustees and the like, tapping into the generous coffers of their insurance cover.

This entrepreneurial endeavour had a flaw, however, because PGC's subsidiary Perpetual was trustee for many of the failed finance companies. Thus, one arm of PGC could end up financing a lawsuit against another arm of PGC.

Much awkwardness was avoided when the FMA awarded Perpetual a highly conditional trustee licence, effectively trampling the tulip.

Still, the accounts say PGC should one day yield a hefty gain on its current share price, so a handful of hardy shareholders are hanging in there like egrets on a hippo, hoping to pick off a tasty morsel.

No doubt the egrets would like to have pecked Kerr himself at the annual meeting last month, but the enigmatic investor declined to front.

Chalkie reckons Kerr won't be around New Zealand much any more, which will leave the market party without the guy who can crush a beer can against his head, play honky-tonk piano and spill chips all over the floor at the same time.

Also exiled is Mark Hotchin, although for different reasons.

In March, the FMA finally filed a civil claim against Hotchin and five other directors or promoters of Hanover Finance, Hanover Capital and United Finance, almost four years after the companies collapsed.

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Hotchin, who filed his defence in August, is said to be hunkered down in California, far from the madding long white cloud. Chalkie hasn't been able to confirm his exact whereabouts, but would guess Hotchin will be spending more time here than Kerr - as well as the FMA action to defend, the Serious Fraud Office (SFO) is still on the case.

Acting SFO chief executive Simon McArley, when asked whether the interminable Hanover case would ever see the light of day, said it would.

"Have faith," he said, "we're getting there."

The wait is finally over for Fonterra investors, who flocked to the co-op's new Shareholders' Fund like geese to a cornfield. Unfortunately Chalkie's gizzard remained empty, and there were honks of complaint from several other hungry birds - with the stock trading last week above $7, the $5.50 offer price was bargain of the year.

Still, Chalkie reckons the fund has depths of complexity that could yet cause surprise. For example, the milk price payment to farmers is calculated after allowing for a weighted average cost of capital return on Fonterra's milk processing assets. That return will vary from year to year - the lower the return, the higher the milk price - and it could make a material difference to Fonterra's milk bill, which means it could affect the dividend.

It's odd, too, that on December 10 Fonterra managed to announce both a higher milk price forecast and a forecast net profit range of 40 cents to 50c a share. Normally, higher milk prices would tend to mean lower profits, but at 50c the upper end of the range is well above the 43c prospective figure in the prospectus.

The Fonterra offer was controversial for appearing to favour foreign investors over locals. Some in the market went so far as to mutter darkly about stock being fed to foreign hedge funds - notoriously short-term players - because they generated better brokerage.

Chalkie reckons that sounds cynical, but there was no shortage of concern about foreign finance during the year. The sellout of Fisher & Paykel Appliances to China's Haier focused many minds, but for all the talk of the company's Kiwiness, money talked louder and $1.20 a share was $1.20 a share.

Or $1.28 as it turned out, after fund manager Tower spearheaded efforts to wring extra cash from the Chinese company.

It was an outspoken effort from Tower's Sam Stubbs, who copped a bit of flak for bandying some large numbers about in the course of talking up F&P's value.

There was general agreement though that new leadership at F&P, particularly involving chief executive Stuart Broadhurst, had made a big difference to the company's value.

You could say the same about Geoff Ross, who managed to get investors to pay $16m for a minority stake in his start-up brewing company Moa. Chalkie was duly impressed, even if the success of the float suggested over-enthusiasm from investors more than an oversized money-making opportunity.

If anything, the Moa deal showed the level of market confidence was higher in 2012 than it had been for years, so much so that Chalkie heard again that old line "you could float a brick".

As well, 2012 had the Mighty River Power Maori challenge, the Ports of Auckland strikathon, Sir Ron Brierley's final curtain at GPG, interest rate swap scandal, foreign trust scandal, shell company scandal, dissonance over Chorus regulation, constipation at Solid Energy, the slow-motion restructuring of MediaWorks and an attempted coup of Fisher's Marlin Global fund, to name a few.

But more than that we had the remarkable David Ross, who emerged from obscurity to become the most infamous financial adviser in this country this century.

Ross' escapade, or at least what we know of it so far, lobbed a stink bomb into the heart of our complacent financial sector, tainting everyone and everything he touched.

Receivers appointed to Ross companies have found assets totalling $11.5m, a significant shortfall on client accounts purporting to be worth $449.6m.

Chalkie looks forward to learning more about Ross in the way you want to hear about someone's appalling behaviour at the party the night before. It's awful, yet compelling.

But as this is the last Chalkie of 2012, more on that will have to wait. In the meantime thanks for reading. Chalkie wishes you a restful festive season and a prosperous new year.

- Chalkie is written by Fairfax Business Bureau deputy editor Tim Hunter.

- BusinessDay.co.nz

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