Hi Hoop,
>>
>>
>> I would say that action of Westpac (Investment Funds)
>> was quite sensible. Tranzrail were/are facing bankruptcy
>> within the space of a few weeks.
It was a perception only to those selling >>
>>
>
>If that happened and the Govt were irresponsible to not intervene,
> the railways would have to cease operations making reliant
> businesses unable to move their produce, that would cause
>national economic chaos wouldn't it ?
Excellent e-mail from Marilyn Munroe and Snoopy regarding British rail and the way the Bristish handled it. It seems that the NZ Govt don't read our posts and their advisors are not up to play with British Goverment history to which our Laws are based around. It seems the Labour Govt has chosen the path I thought they might...it is possibly the wrong path but time will tell. Marilyn Munroe latest post is very accurate....Govt sells taxpayers built up assets ...the buyer rapes and ruins the company ..the Govt buys up the company ..tax payers rebuild it again ..the Govt sells taxpayers built up assets ...and around it goes again....a no brainer way of doing business. I agree totally
>
>
I think you are arguing here Hoop
debate yes argue never, that Tranzrail would not have been
allowed to cease operations as it is a kind of essential service so
investing in Tranzrail was not quite the risk it seemed. I think that is a
common view, and a scenario that many 'investors' in Tranzrail who
moved onto the share register over the last few months were banking
on. I also think that this comment highlights a couple of what I see as
myths on the subject of Tranzrail which are worth discussing further.
1/ Myth 1: Tranzrail will never be allowed to cease operations as it
would be chaos for the exporters and road users alike, so investment
in an icon like Tranzrail is always safe:
Exploding Myth 1: The above myth is based on an error in fact,
Only if life was always right never wrong...When one invests it is the paradox which is the only identity that one can rely on as being totally true. that
an investment in Tranzrail and the physical rail operations are
irrevocably coupled. This is completely false, so it is no surprise that
any conclusions based on these 'facts' are wrong.
Those who buy shares in Tranzrail are not buying shares in our rail
system. They are buying shares in a financial entity that controls the
rail system, which is a significantly different thing.
This way of thinking can be applied to many other companies with physical (tangible) assets, from the biggest Telecom to the smallest.. the corner dairy. The financial entity
that controls our rail system can go completely bankrupt leaving
shareholders with nothing. But that does not mean that all trains will
suddenly grind to a halt. If Tranzrail go bankrupt, then the banks will
take over control and can continue to operate the rail network.
Superficially trains are still running and goods are being moved but
that doesn't stop the financial entity belonging to shareholders that
used to control Tranzrail being permanently dead.
A local example,
Bad example ..see below. some ten years or so ago of this situation was the
case of flamboyant Israeli millionaire Michael Sherry buying up shares
in financially embattled locally listed TV3. He did so because 'TV3 is
an icon which would always exist in some form' and it was 'going
cheap'. Sherry was right in that TV3 is still here. What Sherry didn't
understand was that buying shares in TV3 was really buying into a
financial entity that controls TV3- not buying the hardware and the
people that make up TV3 itself. That locally listed TV3 financial entity
is dead and Sherry has lost all his money. The fact that TV3 is still
up and running and now owned by CanWest is of no financial benefit
to any of the final shareholders of the local listed entity that was TV3.
History showed that considerable amount of money was spent for TV3 to gain a broadcasting license to enter into the then Govt monopoly of TV1 & TV2, when TV3 got into the "club" it found 2 TV channels that were monolistic in theory actually behaved the other way round, giving high quality programs at a very cheap price ( broadcasting fee) TV3 found it hard to compete as the monopoly was still in place as the Govt channels had bought up all the buying rights for the best programmes, so TV3 had to rely on low quality re-runs or mini-series of which the sci-fi "V" in 1991 was one of their best success.>
>
>Or perhaps a form of nationalization at the 12th hour,
> which would perhaps have the same result for
> shareholders?
>
>
which leads to
Myth 2: Investing in a national icon like Tranzrail is always 'safe'
because the government will not allow it to collapse. There will
always be a nationalization safety net under it.
With the Labour Govt this seems to always be so. My views have not changed
Exploding Myth 2: It is not certain that the government will bail out an
icon like Tranzrail, by 'doing an Air New Zealand' and putting more
financial equity into the financial holding company that operates
Tranzrail.
It has now it seems.Another way would be to let Tranzrail go bankrupt and nationalize it by
the method of the government buying shares off the receiver. This
way means existing shareholders get nothing.
Not a smart political move if they want to be re-electedThe other uncertainty scenario, if there was a capital injection, is that
the terms of any capital injection are completely unknown. In the case
of Air New Zealand, AIR shareholders had their share of 'our' airline
business reduced from 100% to around 20% as new shares issued to
the government diluted their holding. But there is no guarantee any
similar rescue of Tranzrail would be structured the same way.
It worked with AirNZ so I guess the Govt thinks it will work again
Let's assume the net tangible asset backing of TRH is $2.00, and we
use that as a measure of today's value of Tranzrail. By that measure
Tranzrail trading at 45c is a bargain.
Now let us assume that the government issues four shares to itself at a
price of 30c for every share of Tranzrail that already exists (the same
deal that they gave Air New Zealand). This means the net asset
backing per share reduces to 64c. You could argue that it is still
good value to buy TRH at 45c under this scenario.
However, there is no compulsion at all for the government to issue
shares to itself at 40c. As a funder of last resort the government might
decide it is only prepared to pay 5c for the new shares it issues itself.
Because it is only prepared to pay 5c, but Tranzrail still needs the
same amount of money, the government will need to issue eight times
the number of shares to itself as originally envisaged.
This reduces the net tangible asset backing of all Tranzrail shares to:
[(1x $2.00) + ( 8x4x $0.05)]/ 33 = 11c
This makes TRH shares on the market at 45c look very expensive.
The point I am making here is that there is no rational method to
decide if TRH shares at 45c are a bargain or not without knowing the
terms of any 'rescue' package. Fundamental analysis of the existing
Tranzrail will not help you here.
Not sure, Fundament analysis would be your only guide here wouldn't it?
Buying TRH shares at 45c was a straight gamble that could have gone
either way.
80 cents now with Govt buying extra shares at 67 cents...one can assume their is alot of hidden value somewhere. Looking in hindsight is great isn't it ? buy in at 45cents sell out when????? nice profit 
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