ownership changes

When the rest of the sharemarket rallied from early March, one stock, which had previously traded in lockstep with the market, was left behind: Infratil going backwards instead.

That's because some investors now think the company has a debt problem, the big bogey of the moment. Those investors may well think their fears are confirmed when Infratil reports a hefty bottom-line annual loss tomorrow, probably around the $200 million mark.

But Infratil is no Nuplex with recession-battered earnings. The losses will mostly be paper losses from writing down the value of its listed investments, particularly its 3.3% of Auckland International Airport, and 33% of Australia-based Energy Developments.

Most likely, Infratil will also write down the value of its British airports, which have been reporting mounting losses as the global recession bites particularly savagely in that country.

In a sense, that's all noise. A key number will be operating earnings, which should come in at about $350m, up 11% on the previous year. The underlying earnings of its key assets, such as its 51% stake in TrustPower and 66% of Wellington International Airport, continue to grow at a healthy pace. But the value of Infratil's assets does matter in the context of its bank debt.

Rob Bode, an analyst at First NZ Capital, says one of Infratil's three banking covenants is that shareholders' funds must be above 40% of total tangible assets.

In early April, Bode calculated this ratio could have fallen as low as 43.3% from 49% in September last year. Infratil had kilometres to spare within the other two operating earnings-based covenants, he reckoned. Later in April Matt Henry at Goldman Sachs JBWere conducted a similar exercise and estimated shareholders' funds were sitting at about 48%.

Of the company's main $520m banking facility, a third is rolled over each year and $174m was duly extended in February. A presentation the company gave to analysts this month showed $327.4m net bank debt at March 31.

Given how gloomy the mood in global financial markets was in February, I would have thought if Infratil really was in trouble with its banks, it would have shown up then. Assuming the banks keep rolling over debt, the first major refinancing event Infratil faces is in May 2011, when $112m of its listed bonds mature.

Infratil has a total of about $750m in listed bonds, including nearly $240m in perpetual bonds, all of which rank below its bank debt, which no doubt gives its bankers considerable comfort, but which also led analysts to the conclusion Infratil is over-geared in the current environment.

All of Infratil's bonds are trading at significant discounts to face value so issuing replacement bonds now doesn't look like a viable option, but who knows how sentiment will have changed by 2011.

Acting chief executive Marko Bogoievski says the bank rollover was uneventful. "There wasn't really even a conversation," he says, although the margin Infratil has to pay has gone up, in line with margins everywhere. Nevertheless, Bogoievski says investor perception is a reality which the company must address. Rather than raising equity at huge discounts, as other companies have been doing, Infratil has been selling assets.

In April it sold Fullers Ferries for $40m, yielding an estimated $12m profit over book value, and later that month it sold properties for $23.1m, a $4.1m profit over book value.

Bogoievski says Infratil will probably exercise its put option to sell its 90% stake in Luebeck Airport in Germany back to the city. That will yield about $60m.

Another possible source of funds is Infratil's warrants which lapse in July. If exercised at $1.62 they could raise $136.7m. The shares mostly traded above that level last week, increasing the likelihood the warrants will be exercised.

While Infratil clearly has plenty of time to sort out its balance sheet, Bode's argument that the company needs to position itself to take advantage of current conditions is compelling. "Arguably, Infratil's model and the market are probably much more prospective than they have been for a long time," he says. With a deregulation-minded government, likely opportunities for private participation in infrastructure projects, and the exit of private equity buyers prepared to pay over the odds for the sorts of assets Infratil favours, "the market is ripe with opportunity".

Rob Mercer at Forsyth Barr suggests Infratil also consider selling its stakes in Energy Developments, Auckland Airport and Austral Pacific.

* Jenny Ruth is a freelance journalist and a columnist for The Independent.

Auckland ferry company Fullers is assuring its thousands of passengers and 174 staff that service levels and fare concessions will not be cut under new ownership.

That includes free travel on NZ Bus services throughout mainland Auckland for holders of monthly passes for the Waiheke ferries, Fullers chief executive Douglas Hudson said.

His assurance followed an announcement yesterday by Infratil - which also owns NZ Bus - that it had sold the 11-ferry Fullers operation for $40 million to Souter Holdings, the private investment arm of Scotsman Brian Souter. Mr Souter was also chief executive of multinational public transport operator Stagecoach, which sold its New Zealand bus and ferry operations in 2005 to Infratil for $250 million.

Since that sale, he had returned to New Zealand to buy Howick and Eastern bus company in Auckland and a 74 per cent stake in Mana Coachlines in Wellington.

His New Zealand-based executive chairman Bill Rae said there would be no retrenchments or restructuring of the Fullers operation and his firm had full confidence in the management.

Campaign for Fairer Ferry Fares spokeswoman Cathy Urquhart, whose group was continuing to push for a reversal of fare rises imposed last year on the Waiheke Island runs, said she feared having to deal with yet another tier of decision-makers and wondered about the future of the free bus travel for monthly ferry ticket holders.

Infratil's sale of Fullers ferries is part of a retreat from underperforming businesses to repay debt.

The infrastructure investor yesterday announced that subsidiary NZ Bus is selling its interest in Fullers for $40 million to Souter Holdings, majority owned by Stagecoach co-founder Brian Souter. Infratil will retain its NZ Bus operations in Wellington, Hutt Valley, Auckland and Whangarei.

Infratil says the deal was part of a programme of divestments which would realise more than $100 million in this financial year. The money would be used to repay debt of about $1.2 billion including infrastructure bonds, perpetual bonds and bank debt. Infratil executive Tim Brown said the $100 million also included exercising the right to sell Lubeck Airport in Germany, worth about $60 million, and the sale of some bus depot properties in Auckland.

"In this environment we do have to look at recycling some capital and cut back on where you can't see them generating strong returns. The short term for us is going to be debt repayment but in the medium term there are various opportunities."

He would not comment directly on one analyst's suggestion that Infratil's other underperforming European airports could be next but said it was hard to run with a loss on a low-return asset in the current environment. Around 75 per cent of Infratil's investments, including Wellington Airport and TrustPower, were performing well, Brown said. "You have to say to yourself, can you have 25 per cent of the business not generating a return? In this type of environment you can't."

Souter's purchase of Fullers sees Brian Souter back on deck there after four years. In 2005 Stagecoach NZ sold its bus services and ferry business to Infratil for $253 million. Souter Holdings, which operates Howick & Eastern buses in Auckland, also has a 74 per cent ownership of Mana Coachlines in Wellington.

Brown said the Fullers sale signalled the intention of NZ Bus to focus on developing its core bus business. "The bus business is definitely one we like and we're enthusiastic about it."

Fullers' sale price reflected the market. "It wasn't a great price but I think it was a fair price," he said.

Forsyth Barr's head of research, Rob Mercer, said the sale was a signal that in tough conditions assets that were not strategic would be sold. "Their European airports are underperforming and I suspect they'll be looking to liquidate those unless they want to hold on to them long term. "It sets the scene for how they're going to shore up their balance sheet and get themselves in a position to go forward when they can see the light of day."

Infratil shares closed unchanged at $1.47.

Grocery giant Foodstuffs' presence in liquor retailing could get a shot in the arm as it looks to swallow Liquorland.

The co-op, which controls around 56 per cent of the grocery retailing sector, is understood to be one of several parties interested in purchasing the 72 stores of DB Breweries' franchise retail chain. Besides supermarket wine and beer retailing, Foodstuffs also operates the large format liquor store Duffy & Finn's, and the smaller format Henry's.

Success in the Liquorland bid could add fuel to the already intense rivalry with Woolworths.

The Australian-owned supermarket firm is still pursuing Liquor Licensing Authority approval for store-within-store models selling spirits as well as beer and wine - despite being denied a bid to set up in a Christchurch Countdown in what was regarded as a test-case decision.

And success for Foodstuffs could spell trouble for independently owned stores, which cannot compete with the supermarkets' buying power. Large liquor chains have a slight edge in market share, controlling around 53 per cent, to the independents' 47 per cent.

Foodstuffs was not commenting on speculation of the bid, as was DB, citing confidentiality agreements. A DB spokeswoman said the company decided to review the option of selling the Liquorland franchise after several unsolicited expressions of interest. "We're not committed to a sale - we're investigating the possibility. "We just received a bit of interest and like any business, we evaluate opportunities as they arise. "Liquorland is a successful asset for DB Breweries, so while we are looking at the option to sell, we will only consider this if a suitable buyer is identified."

Cranleigh Merchant Bankers was appointed last month to evaluate bids and manage the sale process. Evaluation of a possible sale will take place over the next few months. The spokeswoman said any sale would ensure the future interests of franchisees and staff, and the continuation of the franchise as a whole. A sale would also need to ensure that DB retained "an excellent relationship" with the franchise, retaining placements for DB products within Liquorland outlets, the spokeswoman said.

The longstanding Arbuckles brand is about to fade into oblivion as the manchester chain's new owner, Jan Cameron, liquidates stock in preparation to close the stores.

Ms Cameron, the former Kathmandu owner, is expected to use the sites to launch a new chain of homeware stores called Dogs Breakfast Trading Company, which she has already set up in Australia.

Ms Cameron, who has a wealth of $320 million according to the 2008 National Business Review Rich List, bought Arbuckles two weeks ago for $4 million from Postie Plus Group. She took over 13 stores throughout New Zealand, bought all the stock and re-employed most of the staff. Those stores were now advertising closing down liquidation sales.

Arbuckles was founded 35 years ago by John Arbuckle, who started the chain out of a van in Christchurch. He and his wife Vicki sold it to Postie Plus in 2003 for $9.5 million.

Ms Cameron could not be reached directly, but a spokeswoman at Arbuckles' head office in Christchurch said she had told staff she did not want to comment.

Dogs Breakfast Trading Company sells furniture, homeware, crockery and premium pet food, according to the store's Australian website.

Ms Cameron owns a chain of five homeware stores in New Zealand, called Nood. It was not known if she would use some of the former Arbuckles stores to expand Nood.

Seeking a new challenge, Blenheim couple Jo and Jack Stafford are moving south to take up the reins of Kaikoura New World.

The couple, who currently co-own Blenheim New World with Mrs Stafford's sister Andrea Boock and her husband Mark Elkington, take over the store from owners Jason and Joanne Williams on August 4. From then Ms Boock and Mr Elkington will be the sole owners of the Blenheim store.

"Kaikoura came up for sale and we just thought it was a great challenge and a great opportunity for us," Mrs Stafford said. The couple make the southward move at the end of the month, along with their 10-month-old baby daughter, Charlotte. "We're excited about moving to Kaikoura and getting involved in the community and being part of the small-town spirit," Mrs Stafford said.

The Williams', who have owned the Kaikoura New World for about five years, are moving to Timaru to take over the town's PAK'nSAVE store at the end of August. Six-and-a-half years ago the couple owned Kaikoura's Four Square for about 18 months.

At this point Mrs Stafford said she and her husband did not have any changes planned for the Kaikoura store and the takeover would not bring any noticeable differences for shoppers. "It will be really nice to eventually make our own mark on the store with maybe some different products, but for now it'll stay as is," she said.

Supermarkets are in the Boock family's blood as Mrs Stafford's parents, Bruce and Maria Boock, bought the Blenheim New World in 2000 before handing it on to their daughters and their husbands earlier this year. Mrs Stafford's paternal grandparents started the family in the industry with a Four Square supermarket in Dunedin in the 1970s. Much of her extended family on her father's side are either working or have worked in the family supermarkets or in supermarkets of their own. "So in my family, instead of falling out of cots, we fell out of shopping trolleys," she said.

Although the couple were looking forward to the move, Mrs Stafford said it would be tinged with a little sadness. "It will be sad to say goodbye to Blenheim with all our family and friends here. Also our staff, they have been a huge part of our lives."

Pumpkin Patch shares are continuing to surge in value after multimillionaire Kathmandu founder Jan Cameron disclosed a 6.3 per cent interest in the children's clothing retailer.

The shares are now up 12 cents, or 8.5 per cent, to $1.52 from the four-year low of $1.40 hit on Friday shortly before the reclusive Tasmanian resident Cameron disclosed her holding. Cameron is the second wealthy retail investor in a few months to disclose a holding in Pumpkin Patch. The majority shareholder in Briscoe Group, Rod Duke, has built a 10 per cent stake.

Pumpkin Patch chairman Greg Muir said today he was "comfortable" with the new investors. "It is two well placed New Zealand investors who obviously recognise that the company is undervalued at the moment." On Cameron, Muir said: "She's been building that [stake] over many months - we've known about that. We haven't had any dialogue with her at all. It is for her to discuss. We are quite comfortable. We've got no issues with it."

While the moves by both Cameron and Duke will lead to speculation that one or both may seek to assert influence on the future running of Pumpkin Patch, Muir said he believed both might be passive investors. Neither had sought a seat on the board at this stage. "They've certainly made no representations to us in that respect, but I can't answer what their intentions are."

The moves from both the investors come as Pumpkin Patch, a former sharemarket darling, has seen its share price pounded as investors worry about apparent speed wobbles the company is hitting in its US and British expansion. There is also concern about its stock levels, which have risen sharply this year and its debt levels, which may now be as high as $95 million from virtually nothing two years ago.

Cameron sold Kathmandu to private equity partners Goldman Sachs JBWere and Quadrant in 2006, reportedly for about $275 million. Subsequently she has built a 15 per cent stake in Postie Plus. She also recently bought the Arbuckle's stores from Postie Plus. In addition she has opened five homeware stores in New Zealand under the brand name Nood (New Objects of Desire).

Pumpkin Patch's shareholder register is now getting crowded. The biggest individual shareholder is still believed to be South African investor Setar Motani, with about 12 per cent - though this shareholding has reduced in the past few years. Another investor who has reduced his shares since the company floated in 2004 is managing director Maurice Prendergast, who currently owns about 6.2 per cent, down from 8 per cent a few years ago. Fisher Funds Management has recently sold down its stake to around 6 per cent as well.

Pumpkin Patch shares were listed in mid-2004 at $1.25 a share. They rose to as high as $4.95 on a wave of enthusiasm about the company's moves to become a global brand. However, in more recent times the expansion into the US and Britain has appeared to hit speed wobbles.

Market expectations had been for a profit this year of about $22 million to $23 million, down from $27.6 million. But it is likely analysts will further trim earnings forecasts after a recent Asian investor roadshow presentation by the company that talked about tough conditions in Britain and the US.

British transport entrepreneur Brian Souter has re-entered the Wellington bus business, with Souter Holdings buying Mana Coach Services from merchant bank Bancorp.

The price has not been revealed. Mr Souter founded multinational transport firm Stagecoach and is still a major shareholder.

Mana Coach runs 120 buses in the Wellington region, including Newlands Coach Services.

Stagecoach New Zealand was sold to Wellington investment firm Infratil two years ago for $250 million. Stagecoach New Zealand runs scheduled bus services in Wellington and the Hutt Valley as well as Auckland.

Bancorp bought its stake in Mana Coach from the Waddell family in July last year for an estimated $24 million - a day after Infratil said it would appeal against a High Court decision preventing it from buying all of the company. Infratil already owns the remaining 26 per cent of Mana Coach through the purchase of Stagecoach. Bancorp described its purchase of Mana Coach at the time as a "long-term strategic investment in infrastructure". Infratil finally lost its appeal against the High Court decision last month.

Bancorp managing director Craig Brownie said Mr Souter made an approach to buy Mana Coach "three or four weeks" ago. Mr Brownie denied that Bancorp had been warehousing the shares on behalf of Infratil while it awaited the outcome of its appeal.

Infratil has consistently refused to say whether it had done a deal with Bancorp to buy the shares if the High Court appeal had succeeded.

Mr Brownie said Bancorp always had Infratil in mind as a potential buyer of the Mana Coach shares if it had been allowed to bid for them. "But it would be fair to say that New Zealand Bus would see Souter Holdings as a good co-investor long-term. "As a 26 per cent shareholder they had to be happy with the Souter company coming in. Even though they lost the court case, they are very happy about the outcome."

Returning the company to the control of a highly experienced operator was the best outcome for the business, he said.

Former Stagecoach New Zealand managing director Bill Rae has been appointed chairman of Mana Coach, replacing Mr Brownie, and Geoff Norman will continue as chief executive. Kerry Waddell has left the board, as a Bancorp appointment.

TOURISM Holdings is going into a joint venture with coach operator InterCity Group as it looks to drive further rationalisation in the tourism sector and reduce its costs.

THL said yesterday that it would be selling its Fullers Bay of Islands leisure cruising business and Great Sights coach tour operation to InterCity. The deal, effective on December 1, will see THL gain a 49 per cent shareholding in InterCity and take out $16 million in cash.

THL chief executive Trevor Hall said the new combined InterCity company would be "a significantly more profitable vehicle than either of us operating individually. We are talking in the multimillions (of dollars)."

In conjunction with the deal, THL is also restructuring its internal operations, which will include duplication of services that occurs at the moment in some areas such as reservations. This will see job numbers reduced by 30 by next April. Mr Hall said he was confident the staff would be able to be placed in other jobs both within THL and in other tourism- related businesses.

InterCity operates the country's largest coach transport network, connecting to more than 600 destinations and with over 150 services a day. It also owns the Kings cruise and tour business in the far North.

InterCity is controlled by Masterton's Tranzit Group and Timaru's Ritchies Transport. Tranzit is owned by the Snelgrove family and Ritchies by the Ritchie family. Nelson bus operator SBL also has a small stake in InterCity. The current shareholders will collectively own 51 per cent of the new InterCity Group. The new company will have an enterprise value of about $70 million.

Current chief executive Malcolm Johns will continue to manage the business.

Forsyth Barr head of research Rob Mercer said the deal was an excellent outcome for THL. "This transaction again highlights the upside potential from divesting/merging (THL's) leisure group operations," he said. "THL gains the benefit of maintaining a financial interest in the operations while at the same time releasing some of the capital -- $16 million -- tied into this underperforming part of its group assets."

Tourism Holdings is involved in a broad range of tourism-related activities. It owns attractions such as the Waitomo Caves and Kelly Tarlton's and operates motorhome, campervan and rental car businesses.

The company has been looking to focus on the rentals business, the most profitable part of its operations. An attempt early this year to sell its tourism leisure group, which includes assets such as the Waitomo caves, led to a $277- million bid being made for the whole company by Australia's MFS Living & Leisure.

The bid narrowly failed to reach the required 90 per cent acceptance level, and lapsed in late July. Mr Hall and his team have looked for ways to streamline the business -- the company sold two thirds of its interest in Johnstons Coachlines. THL shares closed unchanged at $2.30.
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CAPTION: Bolting ahead: THL will pocket $16 million from the deal with InterCity.

Matariki Forests has suspended logging a forest in the Bay of Plenty, blaming tensions in the aftermath of police raids this month.  The company is confident of its right to log the 1300ha Matahi Block because its research has uncovered a document made of calf skin dating back to the 1890s it says supports its ownership claim.

Matariki Forests was in dispute with the Omuriwaka hapu over its right to log the Matahi Block before the police searches for weapons associated with alleged military training camps in the Bay of Plenty increased tension in the region.  Matariki Forests stopped logging the Matahi Block last year when Maori blockaded access and vandalised equipment. In July the company called police in to remove a portable sawmill in the block. The mill, vehicles and two buses were removed.

Matariki Forests' investors include United States forestry giant Rayonier, as well as Deutche Bank and AMP. It bought 95,000ha of forests from Carter Holt Harvey for $435 million and forests owned by Rayonier were also put in the venture.  The disputed Matahi Block is worth about $15m.

Matariki Forests' director Paul Nicholls said none of his staff had been threatened by weapons but the company was preparing to go back in to log the block when the police raids occurred and had consequently suspended that decision.  He said Omuriwaka were the only the hapu to dispute the company's right to log.

The Matahi Block is part of the Tahora Block purchased by the Crown in 1896. It was used for soldier settlement after World War 1. Later owners included John Spencer, the toilet paper empire owner, and Carter Holt.  Mr Nicholls said the company has researched the title, though John Hillman-Rua, spokesman for the Waimananuku Iwi Authority, disputes the title belongs to the company in today's Sunday Star Times newspaper.  The company stopped logging in 2006 when title was disputed. 

"We got a land information specialists to research the title and he found the original document in the National Archive. It was written on calf skin and it is the equivalent of 54 A3 pages of signatures," he said.  The signatures were gathered from 1893 to 1896 and the document was written in both Maori and English. The document had a map of a block 213,000 acres (86,241ha) in size sold for 2.5 shillings an acre.

Maori oral history contradicts the document. The company's position is that the Waitangi Tribunal should be the mechanism for resolving the matter.  "Blocking us from harvesting the forest is not going to get us anywhere," Mr Nicholls said.

He said the company had also been accused of dishonouring tapu burial sites and other sites but it did not believe it had done this.  It had discovered that Carter Holt had encountered problems logging the block previously.  Forestry industry executives have said that at one point the Ureweras were to become a major plantation forestry region of similar size to the central North Island.  But the plan never went ahead and Carter Holt bought new land in Northland instead.

Blocks in the Ureweras are left from that time.  Matariki Forests wants to replant the forests it harvests in the area.