NZF Group (NZF and NZF010)

[invessi]

NZF
26/01/2011 16:45
GENERAL

REL: 1645 HRS NZF Group Limited

GENERAL: NZF: NZF Group Ltd Announces Maturity options on Capital Notes

NZF
26/01/11
CAPITAL NOTES (NZF010)

NZF Group Limited (NZF) Announces Maturity options on Capital Notes (NZF010).

Letters have been sent to all NZF Capital Noteholders on the register today
for NZF010 Capital Notes that mature on 15/03/2011.

The letter includes an Election Notice, in terms of the Trust Deed
establishing the Capital Notes ("Trust Deed"), and confirms that:

- NZF has elected to provide Noteholders, with the option to renew all of
their Capital Notes on the terms specified in the Election Notice ("Renewal
Option");

- If they do not elect to accept the Renewal Option, then NZF has elected
that it will, on the Maturity Date, compulsorily redeem all of their Capital
Notes by issuing new ordinary shares in NZF in accordance with the terms of
the Trust Deed;

- NZF has elected to not redeem the Capital Notes for cash on the Maturity
Dat
e..

The covering letter, Frequently Asked Questions and Election Notice are
attached.

Capital Noteholders that wish to exercise the "Renewal Option" must complete
and return Election Notices to reach the Registrar (Link Market Services) by
24 February 2011.

Malcolm Lindeque
For and on behalf of the board of directors
Company Secretary

ENDS
End CA:00204900 For:NZF Type:GENERAL Time:2011-01-26 16:45:21

[minimoke]

So, do we read into that there is no cash and they are looking at a dilution of head shares?

[invessi]

Well yes, cash is King!

[suurin41]

I understand that NZF is a high risk, and I am keen to chuck $1,000 into them. My question is what would be a good price to buy them at?

If you don't think I should even be thinking about this, what other NZX/ASX shares could I look at? Am interseted in shares that are currently low but have a chance of increasing (perhaps doubling) sometime over the next few years. I'm guessing this is high risk behaviour. I have been recommended looking into mining exploration companies in the ASX.

Cheers team

[minimoke]

Well yes, cash is King!

So not good news then. I see active buyers have halved to just one at $0.05. Not really an influential investor -its only $450 worth.

[Enumerate]

Not a good deal ... 6% with maturity in 5 years for a subordinated debt position behind secured debt yielding up to 9.5%.

These guys must think that the NZF010 holders have no where to go but to roll over.

At current prices, they have a market capitalisation of about $12m. There are $20m of the NZF010 - 60% conversion to shares means that the NZF010 holders will own 50% of the company!

The other intriguing possibility is the fabled "death spiral". They need to be notified of renewal election by the 24th of February. I need to consult my trust deed, but I presume the VWAP of share sales between this time and the date of conversion would be used to establish the price of conversion (possibly less a discount). A predator could drive down the shareprice (market liquidity is almost nil) and convert to squillions of shares for a minimal holding in the notes.

Hmmm ... sounds like fun. Anyone game?

[Enumerate]

Thinking things through - I wonder if these guys are planning on making a large share transaction at a price significantly higher than the existing price somewhere in the days after the 24th of February? This would weight the VWAP to a market price and eliminate the possibility of the "death spiral".

[COLIN]

[QUOTE=COLIN;306745]Enumerate: Thank you for your various detailed posts and your erudite analysis of the current position with NZF - a much superior assessment to what I have seen produced by our rather abysmal financial press, if I might say so. The recently-announced results are worthy of detailed study, and distinguish NZF from a large swathe of their lesser-endowed peers. I even bought a few more of the NZF010's, back in April.

One query I would have, in regard to what might happen on maturity of the notes, relates to the manner of arriving at the "market price of the NZF's" if they choose to convert to shares, given that these shares are only traded very spasmodically? I suppose I could find out the answer, if I rooted around long enough, but I thought you might have it at your finger tips. (I tend to agree, though, that they might seek to roll over, and/or refinance elsewhere, rather than dilute the current ownership).

LATER: I have now done the legwork, relative to my query, and consulted the Trust Deed. It states that the conversion price is to be 95% of the weighted average share price over the previous 20 business days. If there have been no transactions on the NZX over this period then the "last sale price prior to that period" is the operative price. It seems to me that this formula leaves the conversion price wide open to manipulation, where we have such an extremely thinly-traded share.[/QUOTE]
Enumerate: Reference your point about the scope for share price manipulation - this is a scenario I foresaw, in my post of 1-6-10 (above), and I can only surmise that they will ensure that "friends" bid up the share price during this period. However, the picture is heavily clouded by the recent "news" (that apparently was passed to depositors, etc., and not to the NZX - without any challenge by the latter!). It really leaves noteholders in the dark and, unless I am missing something, I find the situation totally unsatisfactory.

[Enumerate]

It really leaves noteholders in the dark and, unless I am missing something, I find the situation totally unsatisfactory.

I agree. I was hoping for better treatment - I would have rolled my notes if the interest rate was appropriate to the risk. Why didn't they offer to convert to secured debt on standard debenture terms (ans: probably for capital adequacy reasons).

[minimoke]

The other intriguing possibility is the fabled "death spiral". They need to be notified of renewal election by the 24th of February. I need to consult my trust deed, but I presume the VWAP of share sales between this time and the date of conversion would be used to establish the price of conversion (possibly less a discount). A predator could drive down the shareprice (market liquidity is almost nil) and convert to squillions of shares for a minimal holding in the notes.

Hmmm ... sounds like fun. Anyone game?

Or an alternative where holders bid up the price, in an attempt to head off the dilution, which leaves bond holders little choice but to roll over. Either way the trades over the next month will be very telling - theres surely got to be at least one trade in the 20 days

I reckon most holders won't elect to do anything - the paper will sit in the bottom drawer and teh election date will pass them by.