What happens when listed companies change their financial structures

By Peter V O'Brien

Friday 5th April 2002

Table I: PORTS OF AUCKLAND

Abridged statement of financial position as at June 30, 2001
	As reported	Pro forma: adjusted for share cancellation

Current assets	$23.58m	$23.58m
Non-current assets	$327.75m	$327.75m
Total assets	$351.33m	$351.33m

Current liabilities	$62.11m	$62.11m
Non-current liabilities	$1.43m	$133.43m
Total liabilities	$63.54m	$195.54m

Net assets	$287.79m	$155.79m

SHAREHOLDERS' EQUITY
Share capital	$132.51m	$106.01m
Revaluation reserve	$54.02m	$54.02m
Retained surplus	$101.26m	$85.76m
Share cancellation reserve	Nil	($90.00m)
Total shareholders' equity	$287.79m	$155.79m

Shareholders equity/ total assets	81.91%	44.34%

Ports of Auckland is preparing to repay $132 million of capital in a reorganisation of the company's overcapitalised structure.

The issue was raised at the 2001 annual meeting in October when shareholders were told the company would return $132 million to shareholders.

Chairman Neville Darrow said the repayment would involve the cancellation of one share for every five shares held.

"The board has taken independent advice on the most appropriate capital structure going forward and on the most suitable option for the capital redistribution.

"We have decided on returning capital to shareholders because this approach provides certainty for shareholders and gives an equal opportunity for all shareholders to benefit. It is cost-effective and reasonably simple to carry out."

Mr Darrow said the company's total interest-bearing debt to debt plus equity would be about 50%. He said that was still considered a conservative gearing level.

The October calculations were based on a payout of $5 for each share cancelled but that time has gone.

Delays in getting binding rulings from Inland Revenue and other matters forced the company to delay the appropriate release of a shareholders' disclosure document to Monday, March 25.

That was at the cutoff time for NBR Personal Investor - due to Easter - so the following discussion is based on figures subject to later amendment.

That hardly matters because figures used here were only examples of what happens when companies make capital repayment decisions.

Ports of Auckland's proposal involved a capital reduction of (then) $5 a share on 26.5 million shares, a dividend content of $16.5 million from retained earnings and creation of a negative "share cancellation reserve" of $90 million.

The table shows Ports of Auckland's statement of financial position at June 30 last year and an adjusted position if the capital cancellation happened at that date.

June 30 figures were used, because they were audited, rather than unaudited December 31 accounts.

It is emphasised the table has nothing to do with what a special meeting of shareholders will consider. The table is a "frinstance" situation, showing what happens when companies change their financial structures.

Ports of Auckland has to consider a shareholder proposal to pay $2 million to employees as a bonus and repay $130 million of capital.

The table ignores the proposal's effect on shareholders but assumes the company will raise $132 million of debt to pay for the capital cancellation and adjust the statement of financial position.

A rise in Ports of Auckland's share price in recent months, possibly in part anticipating the share cancellation, was another complication. It does not affect the general favourable reorganisation of the June 30 statement of financial position.

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