NZF Group (NZF and NZF010)

[minimoke]

The company has elected to not redeem Notes for cash. Are you suggesting they might change their mind if Noteholders who convert to shares dump them and push the share price way down? Surely this was always a prospect in a situation such as this. Also, there would be howls of "unfair" from Noteholders who chose to hang on to their Notes.

1) It seems to me the company has no cash so the noteholders won't get cash.
2) Noteholders who convert won't be able to dump - to do that requires buyers and there are none. At best there are a couple of current bids at 4.5 / 4.6 for a grand total of approx $11,000


I'm with Enumerate on the Trustees - why do bondholders not have more information upon which to make a decision. It seems we now have an unknown game, with unknown players and unknown rules. It also looks like the coaches are keeping their game plan to themselves - and thats not a winning strategy. As the Pakistanis know, the only winners are the bookmakers.

[COLIN]

If the market currently values NZF at $11m (or 14.5c) then what is there about this transaction that changes that value - the equity and liability are on the same side of the ledger. Aren't we then going to see the $11m split amongst 125m shares giving a price of 8.8c?

But aren't you overlooking the fact that each dollar of liability that is eliminated is a dollar added to equity? The resultant increased amount of equity is thus spread over the new total of shares.

My whole beef about this circus is that noteholders are flying in the dark, without the aid of radar, compass, GPS or even a basic sextant. Horoscopes are a poor substitute.

[minimoke]

But aren't you overlooking the fact that each dollar of liability that is eliminated is a dollar added to equity? The resultant increased amount of equity is thus spread over the new total of shares.

Its a subordinated debt for equity swap - but that doesn't alter the gross asset backing. Sure the increased equity gets spread amongst a greater share pool - but that doesn't mean the share price goes up. We've recently seen a similar swap with ALF and look where that share price has gone.

[Enumerate]

My biggest problem with the new deal is that, at 6%, the option will do nothing for capital preservation. These notes will drop like a stone, in price, in the short or medium term. Even in five years there is no guarantee of a exit - these notes will be an effective perpetual investment at a rate that does not fully compensate for the risks.

There is only one direction for the NZF shareprice up to conversion ... down. There will be some degree of dilution for holders because of this exercise. However, once the new shares are issued, there will be massive downwards pressure as disgruntled noteholders seek to exit an unwanted equity position in an illiquid market. Anticipating this rush to the exit - selling NZF now for buyback after the conversion would be the natural strategy.

Noteholders are also away of these dynamics - and most will probably suck it up and take up the new offer (a known and manageable effective capital loss is better than the unknown and unmanageable).

My personal view is that the finance sector will eventually recover. The shareprice will never see these current levels, again, if the recovery kicks in. So, now is the time to convert to an equity holding - if NZF can pass the fundamentals test at the likely conversion price. At 14.5cents, I am satisfied it does (but I full expect to covert at less than this).

[minimoke]

Anticipating this rush to the exit - selling NZF now for buyback after the conversion would be the natural strategy.

That would make sense, but as you have pointed out its an illiquid market with essentially no buyers. The two buyers that are there are offering less than Whimp was offering for Vector but the two sellers seem to have your optimism as they have raised their sell price to 18 and 19.

Punters might like to consider how they rate the NZF Directors and management. Are they the same as, better or worse than, say ALF. I see ALF has today hit an all time low of 1.7c. A back of the matchbox assessment would have to rate ALF better - at least they communicated with their shareholders.

[Enumerate]

A back of the matchbox assessment would have to rate ALF better - at least they communicated with their shareholders.

Come on Mini, you are now being mischievious ...

If you are going to do any comparisons ... DPC is a better choice.

[Enumerate]

Trouble at mill .... (can only read the NBR headline - must be the Kiwisaver product, I hope)

Mike Pero pulls the plug on Huljich

[minimoke]

Come on Mini, you are now being mischievious ...

If you are going to do any comparisons ... DPC is a better choice.

Not deliberately - I haven't followed DPC so can't make a comparison. But didn't DPC have cash to buy back notes and actually kept their holders informed with decent options?

[minimoke]

Trouble at mill .... (can only read the NBR headline - must be the Kiwisaver product, I hope)

Mike Pero pulls the plug on Huljich

I guess this follows on from Don Brash quitting them in October.

[Enumerate]

But didn't DPC have cash to buy back notes and actually kept their holders informed with decent options?

Last time I looked at ALF ... well before the Hanover debacle ... I suggested the code should be ARF (as in arf, arf). You have to say the Allied finance arm was gone ... the Hanover issue simply was an attempt to "fall together" rather than separately "fall over".

NZF is a sound business (albiet with some possible capital adequacy challenges ... that they could address through their RMBS scheme).

I think MPM is a great business ... at the bottom of the cycle. The residential property market cannot get much worse.

I expect strong recovery from NZF and MPM once the recovery becomes evident.