Forum Archive Index - September 2002

[" Hans van der Voorn" <vandervoorn@xtra.co.nz>]

Hi Snoopy, the points you make are valid. I agree it's not a strategy
everyone would be comfortable with but I thought a few people might be
interested in it.

 I certainly won't be hanging around waiting for $30/share for ILA, but $6-7
would be quite nice and seems like an easily attainable target. I think the
US market is due to continue falling so hanging in there for no good reason
is not a wise strategy.

The debt figure you use is perhaps a little pessimistic as it includes
current payables and excludes current receivables. Normally in looking at
the debt picture I would nett off current assets and current liabilities,
doing that gives a nett debt of $4.58bn, with fixed assets of $7.14bn,
leaving about $2.55bn in shareholder assets, ie an asset backing per share
of around $14. The price of $2.41 I paid seemed pretty low in that context,
particularly as the $14 should rise a bit after the UNL sale for the reasons
I set out originally.

I think the key issue is that the ILA price has been thrashed to death on
liquidity concerns and concerns with energy traders in general. These should
be largely dealt with by the UNL sale and the fact that the company has
announced it is out of energy trading and going back to its core utility
business, ie similar to the UNL operation. Following that you would expect
investors to then focus on balance sheet value and future earnings.

For a change we have a slight advantage over US investors in that we are
probably closer to what is happening with UNL than they are.

Thanks for your comments


Hans








----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Monday, September 09, 2002 9:55 AM
Subject: Re: [sharechat] UNL - Is now the time to sell ??


> Hi Hans,
>
>
> >
> >As an alternative strategy, I sold my UNL shortly after the sale was
> >announced and bought Aquila (US:ILA) in the US at $2.41. They last
> >traded at $3.83.
> >
> >
>
>
> It is good to see people thinking outside the square in this forum.
> That is certainly a novel way to approach things Hans
>
>
> >
> >
> >I missed out on a bit with the UNL shares, but have
> >gained a lot more on the ILA. {The sale of}
> >(which I expect to be of shares in UNL not the assets of UNL),
> >
> >
>
>
> Even if Aquila sell the shares and not the assets, small shareholders
> will not lose out.  This is because someone else will have to buy the
> shares.  If the company that does the buying buys the Auckland
> network as one unit then this will mean bidding for over 20% of UNL.
>  Effectively this 'buying' company will go over the trigger threshold
> for making a full bid, and will have to make an equivalent offer to
> small shareholders.
>
> Thanks to our takeover code, I don't think there is any way small UNL
> shareholders can lose out in the Aquila sell off, however it is
> handled.
>
>
> >
> >Following the announcement of a sale
> >Aquila's liquidity problems will be well sorted out. I'm not sure
> >how they account for their UNL stake but if they consolidate
> >everything as you would expect, then the Aquila balance sheet should
> >look a lot better after the sale
> >
>
>
> Hmmm, I don't like the logic of this bit.   You say that the Aquila
> debt 'should' be well sorted, yet you aren't even sure if the UNL
> debt is even consolidated into the balance sheet?   Because Aquila
> own something like 75% of UNL I do think your assumption is correct
> though, in this instance.
>
> >
> >then the Aquila balance sheet should look a lot better after the
> >sale because UNL trades at a very high price/NTA ratio and has quite
> >a lot of debt in its own right. When I
> > last calculated it, Aquila should get in the range of US$475m in
> > cash, lose about 10% of that in assets, and lose their share of
> > UNL's debt from their own balance sheet.
> >
> >
>
> I don't follow the logic in this bit Hans.
>
> What does the fact that UNL 'trades at a high price to NTA ratio'
> have to do with the Aquila balance sheet?  Isn't it the price Aquila
> get for the shares, regardless of asset backing, that matters?
>
> What does the fact that UNL has quite a lot of debt in its own right
> have to do with it?   Isn't the important fact the amount of debt
> that is consolidated into the Aquila accounts in total, *relative* to
> the consolidated UNL debt?
>
> According to your reference Aquila had $US9,396.7m in debt as at
> December 31st 2001.   If your figure of $US475mm comes off that, then
> debt goes down to $US8,921.7m.  Moving in the right direction, but I
> wouldn't call it very significant.
>
> >
> >
> >Remember that Aquila used to be safe boring old Utilicorp from
> >Kansas, power lines and gas pipes, with a share price of around $30,
> >which is where they want to get back to. They have obviously lost
> >some value and credibility that with the foray into energy trading (
> >a write down of $5 odd per share) but there is clearly a lot of room
> >for upside,
> >
> >
>
> You said it yourself Hans, 'used to be'.
>
> Far from still being a safe boring company, Aquila is now a heavily
> indebted critical patient with plunging asset values in intensive
> care.  Last week Moody's Investors Service downgraded the energy
> company to junk status. That meant the company has to come up with
> $192 million to cover financial triggers tied to its credit ratings.
>
> An S&P downgrade to junk status would have triggered  another $292
> million of payments, which would wipe out all of the proceeds of the
> sale of it's New Zealnd investments for this year for no gain and
> create an ongoing liability of that magnitude ad-infinitum!   With an
> equity to debt ratio of only 21%, Aquila have no room to move.  The
> dividend has been slashed.  Aquila looks to me like a desperately sick
> company.  But I guess when you are teetering on the brink of Chapter
> 11 bankruptcy you are right Hank, in that the only way to go, and
> survive, is up!  If you are going to hang out for $30 per share
> though, you might have to get your grandchild's grandchild to do the
> selling for you.
>
> >
> >
> >certainly more than you could reasonably expect to get
> >from hanging onto UNL.
> >
> >
>
> But you also have a far greater chance of hanging onto your money by
> sticking with UNL.  The play for UNL is in the end game.  I'd still
> say hang on to see what comes out of it.  UNL is a low risk yield
> investment.   To suggest that it should be swapped for a no yield
> highly leveraged investment in the US is something I can't agree
> with, unless the UNL shares you own are only 'play money' (it
> wouldn't bother you if you lost the lot).
>
> Nevertheless if you pick a recovery stock like hopefully Aquila might
> be, and get the timing right then you can make a killing.   All the
> best for your own investment Hank and good on you for doing well so
> far.   But I don't think your strategy is the type of thing that a
> UNL investor who holds his shares for income should contemplate.
>
> SNOOPY
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "Sometimes to see the wood from the trees,
> you have to cut down all the trees."
>
>
>
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