Forum Archive Index - October 1999

[richard@tkf.att.ne.jp (Richard Scott)]

I don't know if you saw this in the NZ Herald on Saturday but it may be of
interest.

The following from NZ Herald 16/10/99
By Geoff Senescall
Between the lines

Mention to investors the words "subordinated debt" and bad memories come
flooding back about last year's Skellerup debacle. Luckless buyers of the
industrial group's bonds lost virtually all their money.
So it's no surprise some investors are uneasy now about Brierley
Investments embarking on a similar debt issue only a year after its banks
nearly pulled the plug on it.
But the anxiety is overdone. Brierley offers investors some comforts
Skellerup did not.
First, as a listed company, it discloses much more financial information.
Second, 70 per cent of its assets are shares in listed companies which also
disclose data - and the shares would be easy to sell if Brierley had to
raise cash.
Third, if Brierley ran into problems it would have a cushion of $1.3
billion of equity capital before investors in its subordinated debt were
affected. Skellerup had only a sliver of equity to protect its heavy debt.
Fourth, Brierley has a stable BBB debt rating, the same as Fletcher
Challenge and higher than Fernz Corporation which has a similar debt
instrument in the market.
So barring an unforeseen catastrophe, Brierley is offering a relatively
secure bet with its $300 million capital note issue. Under the issue,
shareholders exchange their shares for the four-year notes. When the notes
mature, investors will receive per note, at the company's discretion,
either 55c cash or 55c worth of shares.
Thus the decision comes down to what investors want. For those interested
in income, the notes offer an 8.19 per cent annual return over their life,
assuming a face value of 55c. But given that Brierley shares are currently
trading around 45c, the gross yield is 14.39 per cent.
But shareholders who swap into the notes are giving up the opportunity to
benefit from a possible rise in Brierley's share price. With an asset
backing of around 71c, the shares are trading at a big discount. This gap
could close if Brierley's new boss Greg Terry proves effective.
Investors who hold on to their shares might also receive income if Brierley
resumes paying dividends. A 3c a share payment has already been earmarked
for this year. Brierley's major shareholder, Camerlin Group, sent a strong
message at last year's annual meeting that it was keen to see dividends
flow again.
Shareholders have to decide by the end of this month whether they want to
exchange their shares for notes. Camerlin, the group of Asian investors
driving Brierley, is not converting so its stake in Brierley will
automatically rise as other shareholders swap into notes.
The timing means those who switch will be ineligible to vote at Brierley's
annual meeting on November 11, its last as a New Zealand company. They will
gain more secure income but lose the chance to protest, if they wished, at
Camerlin's plan to turn it into a Bermuda-registered company.

© Copyright 1999, NZ Herald
  BUSINESS







>After spending a day or so reading, surfing, doing 'what if'
>scenarios and generally doing more homework than an amateur should I
>can see no merit at all in these things.
>
>Specifically, I see:
>1/ Income lower than BIL  shares.
>2/ Capital Growth Lower than BIL Shares (and that is after paying
>capital gains tax, if that applies to you).
>3/ Liquidity not Improved.
>4/ Security not improved.
>
>Why would anyone want BIL Capital notes? SNOOPY
>
>
>---------------------------------
>Message sent by Snoopy
>e-mail  tennyson@caverock.net.nz
>on Pegasus Mail version 2.55
>----------------------------------
>"You can tell me I'm wrong twice,
>but that still only makes me wrong once."
>
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