Forum Archive Index - May 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Gary,

You asked whether anyone else had an opinion, so here is mine.

> 
>Current price of 23c may be way below the asset valuation of 40-70c
>depending on which valaution methods are used, however one cannot
>dispute the fact that TTP have been trading up until the proposal
>around 16c and not paying dividends, in a company that has a
>perceived tarnished image and in an unfashionable sector.
>

OK, I see what you are saying up to here.

>
>For those long term
>investors who are sitting on large book losses from years ago , get
>over the fact that you lost money - what happens going forward is
>most relevant
>

But your last line conclusion does not follow.   First you say the 
share price has been languishing prior to the offer.  Then you say 
what happens going forward is most relevant, which implies that 
whatever the share price has done in the past does not matter.

> 
>At the current price of 23c , take the bond which has a face value
>of 10%, in a climate of falling interest rates that is fairly
>healthy yield. If the market values the bonds at the face value of
>35c - 10% yield (assuming the shareholders accept the proposal) then
>one could expect an immediate gain around 12c (35c-23c) a gain of
>52.2%! 
>


There is no guarantee the market will value the bond at face value.
It almost certainly won't, and in fact the bond may be completely 
unsaleable.  There may be no way to get your capital out.


> 
>If the market does not value the bonds in line with current interest
>rates, then you can take a long term view and "only" take an average
>gain of 20.4% pa on your fixed interest investment for the next 10
>years! (12c/23c = 52.2%/10yrs = 5.2% pa (capital gain)   plus
>35c/23c x 10% = 15.2% (interest yield) - you would need to work hard
>to beat that!
>


IMHO, Not really.
Over a ten year period you will find that occasionally people who are 
locked into bonds such as these may want out at any price.   That 
would be your cheap entry point.  Not when the bonds are first 
issued.


> 
>The scheme, basically unlocks all the value that exists (like in a
>number of listed NZSE companies (ala Rubcom,GPG to name but few) and
>shares the value between ordinary shareholders and SEA. 
>


It may share the value, but if the share is fair why aren't SEA 
themselves structuring the offer so that they get bonds too?


>
>If SEA do
>alright out of it than good luck to them. To those that argue that
>the offer is unfair because the property cycle is at a low, then
>where are they out there buying property. 
>

There are three things you can do with a property: buy, sell or hold. 
Accepting the bond offer is equivalent to *selling* property.  If you 
are not a seller that doesn't mean you are a buyer.  You could be a 
holder.   Whether you are a holder or a buyer of commercial property 
depends on what sort of a recovery you think there will be and the 
timing of it and whether you hold the property primarily for capital 
gain or income.  Property slumps tend to be more U shaped (pricewise) 
than V shaped. SNOOPY


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