Forum Archive Index - September 2001

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

Hi Warner,
>
>
>Snoopy, What a difference a month makes. Quite unbelieveable events
>really. I thought you were painting a grim picture back then. A
>Question. What is the current nta given that the company has a
>debt/equity ratio of 93% ( I caught that somewhere). 
>
>
At balance sheet date assets were around $500m, with 750m shares on 
issue.

This gives an nta per share of 500/750= 67c

But as you pointed out, 93% the company's working capital is debt, 
and only 7% equity.  That is perilously close to the situation where 
the banks assume full control of the company.
>
>
>Whats the 7% worth in cps terms, approx? 
> 
>
The 7% of shareholders equity that is left is worth 67c per share 
(that is what I calculated before).  To some extent this figure is 
meaningless. 

There is a lot of uncertainty about AIR at the moment, and I see the 
stock exchange has today suspended trading in AIRVA and AIRVB until 
the murky water clears.

The one point that is clear is that Air New Zealand needs more 
capital and lots of it.  It is also clear that no-one is going to put 
more money into Air New Zealand unless they can get in cheaply (to 
compensate for the risk).   So look for a heavily discounted rights 
issue.  Until we know of the structure of the rights issue all bets 
on the value of a reconstructed Air New Zealand, and by implication 
the value of the shares today, are off.

Air New Zealand has traditionally traded at a discount to it's NTA of 
a minimum of 20%, which means a market price of around 55c is the 
absolute maximum you will see for AIR, even with a government 
guarantee.  The rights issue (or issues?) will probably be discounted 
considerably below this.   Even a 5:1 rights issue at 20c will leave 
Air New Zealand in a marginal position.   This will only raise $NZ1 
billion, which equates to a debt equity ratio of 80%, which is way 
too high.  Such a cash issue would produce a post restructuring net 
asset value of ( (.67)+5(0.2) )/6 = 28c which makes the current 
share price hardly a bargain.

Then factor the international arm of Air New Zealand  and Air New 
Zealand overall (we are not talking about Ansett here) is losing 
money, while domestic services will probably be barely breaking even. 
 As every day goes by, that 67c nta is probably getting less!

The other problem facing Air New Zealand is that they will have to 
present a prospectus for any upcoming rights issue.  And somewhere in 
the prospectus will have to be a scenario where Air New Zealand moves 
back into profit.   In light of the current situations worldwide for 
Airlines (they are burning cash not earning it) it is unclear how 
this can be achieved.

It was with this background and with a heavy heart, (and a heavy 
loss!),  that I quit my position in Air NZ yesterday.   I have 
retained a token number of shares and may well get in later when 
prices plunge again during the rights issue.   Until then I'll be 
sitting on the sidelines. SNOOPY

(disclosure: no longer hold AIRVB)


---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
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"You can tell me I'm wrong twice, 
but that still only makes me wrong once."


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