NZF Group (NZF and NZF010)

[Alan3285]

Seems the market shares your sentiment. All buyers and sellers in the 010's have dried up. - not a single one on wither side of the trade. So much for holders getting cash by selling. New seller in the heads at 0.09. We know its game on - are these the players lining up their pieces?
Edit - and one less buyer. Seems the market is getting wind of something.

I would be surprised if the buyer at 4.5c stays in there (assuming they are paying attention of course).

They might stay, but drop their price I suppose.

Alan.

[minimoke]

Not sure, the 0.09 seller is only for a 1,000 so I think the real action is a way off.

According to Enumerate (and I'm not doubting him) the value on conversion is the average before conversion date and it there are no sales then the last sale price. So even if just 1000 sell the VWAP will be affected. Its a cheap price to pay if it meets the sellers end ambition. (just like we saw previously with the other small trade - it lifted the SP which makes kiwi saver fund reporting look good)

[getontoit99]

This entire exercise is turning out be a shabby manipulation of people to convert to the new notes.

Enumerate, I agree that the rate to be paid on the new notes is very poor given the risks and the five year term.

The alternative on offer is to convert to shares. The problems with this are

• the shares to date have rarely traded,
• there may well be tens of millions of new shares created which is unlikely to be good for the share price even if they do become more liquid.

Sure, the trust deed may allow the company to change its mind at the last minute. Maybe as you have implied, they will decide to redeem notes for cash to avoid a share price collapse and to reduce the number of notes they have to pay interest on. Doing this would be exactly the opposite of their intentions as stated in the election notice, but would appear to be within their rights.

Say the election process results in 30% of the notes heading for conversion to shares. (The company has told me they estimate 30% of notes won't be rolled over to the new conditions.) This would cost NZF $6 million to redeem those notes for cash.

Do you really see this happening? Just to avoid a share price collapse (the death spiral thing we have been reading about in this forum)?

With such thin trading to date, is the low share price, particularly in view of market conditions in the finance company sector, that big a deal in the longer term?

Put another way, do you suggest that note holders elect to convert to shares just in case the company decides to redeem for cash at the last minute?

As a note holder with real money at stake, I'm very interested to hear your views.

[Enumerate]

Put another way, do you suggest that note holders elect to convert to shares just in case the company decides to redeem for cash at the last minute?

The price of absolute certainty is the new 6% note. This option guarantees a poor return over 5 years, for the degree of subordination and the risk. This choice practically guarantees some short term capital erosion (due to the undesirability of the new notes - which will trade at a discount on the secondary market).

The "punk" option is to choose to play financial "chicken" with the company. This leads to a much more dynamic situation. There are some more positive outcomes (full payout) but there are some negative ones (actual conversion to an illiquid equity position).

If the death spiral scenarios play out - the $6m of converting notes could end up controlling the company. Do you really think the directors want to face a special AGM, soon after conversion, in which the new owners of the company will have a word to say about their shabby treatment in the events leading to their new equity positions?

Which is the right path? My personal guess is much more than 2/3rds of existing noteholders will convert - because they depend on the capital performing to some degree as an income generating asset. Holding on for 5 more years, at 6% - hoping they get paid out - is probably going to be the favored choice.

I, personally, have not made my mind up. However, I am watching with interest the beginnings of a death spiral forming (today, with a small parcel being offered at 12cents and then dropping to 10cents). If it can go to 10cents ... it can go to 1cent ... if it can go to 1cent ... it can go to 0.1cents.

Maybe someone is trying to make a point to NZF directors before "game time"?

[minimoke]

The price of absolute certainty is the new 6% note. This option guarantees a poor return over 5 years, for the degree of subordination and the risk. This choice practically guarantees some short term capital erosion (due to the undesirability of the new notes - which will trade at a discount on the secondary market).

Either way existing punters are screwed. 6% is a dreadful rate and NZF is surely pulling the piss offering this. You can get over 6% for five years pretty much anywhere with nothing like the risk attached to NZF. Trouble is the punters have their money in there - they are desperately hoping new money comes in, other wise they have no way of extricating themselves.

As at today I figure holders need to value their stake as $0.00 - they have essentially lost 100%. They now need to figure out how they can recoup some of that loss.

The new notes will find their own level and will be heavily discounted - so existing holders can expect to loose between 50 - 100%. (Anything better than a 100% loss requires a buyer and there are so few of those)

As at today their are no buyers at all so lets imagine a best case scenario is a 75% discount. Will holders then elect to convert, what are the chances of them getting a better return on the main board. Virtually nil.

As their share price has dropped away so has liquidity dried up. I doubt theres been $100,000 worth of trades over the past few years - and all of a sudden there is going to be interest in $6m. I don't think so. So holders have to hold on - and they will have a long time to hold - they need to be looking at a five year window and try to figure out when the best chance of flogging either there shares or notes will be.

How noteholders expect NZF to stump up with $6m in cash on conversion is beyond me. They clearly don't have the cash - its not going to happen.

For holders its now about loss minimisation. For buyers its about lotto - working out the odds of bettering your money and having a bit of fun along the way knowing you are at least helping keep the directors in the style in which they have become accustomed.

[Tony Two Gloves]

Well said Mini I agree whole heartedly.

I suppose for NZF if everyone converts there is quite a decent interest saving of $1,950,000 (9.75% on $20M)per annum or $1,200,000 if everyone rolled over either way should help the bottom line. I think the majority will convert to shares as the best option of a bad bunch, I don't think they have the cash and are in survival mode at present. I wonder how long their banks will tolerate all this and the continued losses?

[Tony Two Gloves]

This whole thing is so open to manipulation and it will make a huge differnce to the major shareholders depending on what the price end up being. Some quick calcs at 0.045 the major shareholders would go from 75% to approximately 11%, at .1375 cents they would end up at 26%, at .30 cents they would end up at 40%, they would need to get the share parice to over 55 cents to get to 51%. This of course assumes all the $20M covert. I wonder if the major shareholders have some of the notes? I remember seeing a Sunday Start Times aticle with John Callaghan saying he couldn't understand the discount (approx 50% at the time) as it was crazy and he would buy some himself if he was able to but couldn't for legal reasons? I suppose now we can all understand why the market was applying the discount now, gotta love that hindsight!!

[Newman]

If you hold a large number of notes and intend to convert to shares you should buy a small number of NZF shares when someone tried to sell at 7 cents. This is probably the only available means you can protect your investment.

I am sure if you place an oder to buy NZF shares at 2 cents NZX will decline your order and say "(your) price too far from last traded price".

Good luck guys if you still have NZF010 notes.

[QOH]

Good to see people's thoughts on the notes. I'm still leaning towards not converting mine, I did buy them on the secondary market so my interest rate will be somewhat better, whether I get my capital back who knows. I will be annoyed if they did decide to pay out in cash to those that converted to shares. That's what I really want, just my capital back.
Did anyone find out if there is still a trading halt on?

[Alan3285]

Good to see people's thoughts on the notes. I'm still leaning towards not converting mine, I did buy them on the secondary market so my interest rate will be somewhat better, whether I get my capital back who knows. I will be annoyed if they did decide to pay out in cash to those that converted to shares. That's what I really want, just my capital back.
Did anyone find out if there is still a trading halt on?

Did anyone confirm there was ever actually a trading halt?

I've personally never known a halt without an announcement, but that's not to say it can't happen.

Alan.