Tranz Rail investors sell despite `No surprises' result

Tranz Rail made a bottom-line loss of $122.7 million for the year, compared with a net profit of $5.6 million for the same period the previous year.

Asset writedowns and changes in its accounting treatments took $143.3 million from the operating profit of $23.9 million.

Tranz Rail shares opened this morning up 3c at $1.68 but sentiment quickly soured and by mid-morning they were down 10c at $1.55. That compared with a year high of $4.30 and a low of $1.30.

AMP Henderson Global Investors senior equities analyst Natvar Vallabh said the result delivered no surprises given Tranz Rail's market briefing in July.

"I think the key issues for the company are the various negotiations it's going through, and until they get resolved the market's not really going to react," Mr Vallabh said.

"The company's also stifled in terms of what it can do until those items get resolved so it's a sit and wait situation."

Tranz Rail did not outline the option of a possible rights issue in yesterday's results.

"They said they're looking at all their options, which could include a rights issue, and it really depends on how they negotiate with their banks in terms of the debt facility, what happens with Tranz Metro in terms of sale proceeds, and what happens in negotiations with the Government over track ownership," he said.

"It was good to see the result was in line with expectations."

He said the current share price reflected the uncertainties.

"It's trading well below various valuations of the company ... There's probably limited downside at these levels, and upside depends on the outcomes of these negotiations."

Tranz Rail chief executive Michael Beard said the benefits of the company's restructuring would start to show in the next set of financial results.

Tranz Rail has been in the process of restructuring into a freight-only company, selling its long-distance passenger business earlier this year.

It is currently in negotiations to sell its Wellington commuter operations, Tranz Metro, and expects a sale by the end of this year or in the first half of next year.

The $116 million in asset writedowns was towards the lower end of the range predicted in July.

Tranz Rail's revenue from moving freight dropped in all categories apart from coal, where it increased by just under $3 million.

Revenue from carrying manufactured goods dropped 30 percent and forestry 25 percent.

Analysts had expected yesterday's profit announcement to be close to that signalled to the financial community in July, when it predicted earnings before interest and tax of $26 million. Yesterday's result was $26.8 million.

Credit rating agency Standard and Poor's was expected to downgrade the rating in reaction to Tranz Rail's heavy borrowings, but has given no indication as to whether it would be by one or two notches.

Mr Beard said the review of Tranz Rail's credit rating by Standard and Poor's could trigger other events, and the company "had plans to cover the various scenarios that may arise".

Tranz Rail's five-year, $250 million debt facility, which is now being renegotiated, was one of the challenges facing the company.

All available measures were being considered by the board, said Mr Beard, including "realignment of its debt facilities both in the short and long term and raising of new equity if appropriate".

Decisions depended on what happened to other parts of the business, including negotiations for the sale of the Tranz Metro business, the need for short-term financial flexibility and whether it would need to provide a letter of credit for the interisland ferry Aratere.

Standard and Poor's recently put the company on negative credit watch for a possible downgrade of its BBB status. A downgrade would allow the lessor of the Aratere to demand a $115 million letter of credit.

Tranz Rail chief financial officer Wayne Collins raised the possibility of this being unnecessary, saying the ferry owners also had the security of the vessel itself, so asking for a letter of credit from the company would mean it had two forms of security.

Tranz Rail's results announcement was made just 24 hours before the reporting deadline for companies with June 30 balance dates.

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