By Nick Stride
Friday 27th October 2000
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|AIR NEW ZEALAND: BIL takes fee to fly|
The $280 million issue, which closes next week, is being underwritten by share-broker JB Were.
The two major holders, BIL and Singapore Airlines, are sub-underwriting the issue as far as their own entitlements are concerned. BIL owns 30% of the "A" shares and SIA 25% of the "B" shares.
They will charge, respectively, a 1.5% fee and a 0.25% fee. Asked why they were charging to underwrite their own entitlements, BIL spokesman Stephen Temple said JB Were's advice had been it was crucial to the success of the issue that BIL take up its rights entitlement.
"If BIL were going to precommit to take up their rights regardless of market and trading developments, it was obviously both fair and more appropriate that the underwriting fee go to BIL rather than JB Were," Mr Temple said.
The question remains why underwriting was necessary at all for the controlling shareholders' stakes given they decided to hold the issue and set its terms and price.
Mr Temple said there were "many precedents for underwriting fees in these circumstances." But several brokers and directors could not recall any.
One pointed out BIL had not precommitted to take up its rights "regardless of market and trading developments." As is standard in underwriting agreements there are seven "outs" under which the underwriting agreement is voided.
These include a 12.5% drop in the NZSE-40 gross index, a 20% decline in a basket of airline share prices, or any "material adverse event" for Air New Zealand.
The prospectus does not explain why BIL gets the full 1.5% fee, equivalent to $1.3 million, while SIA gets only 0.25%, or $177,000.
BIL has received criticism for holding this year's annual meeting on November 6 in Bermuda, where it is incorporated. Shareholders will be able to have their say at a briefing in Christchurch on Monday but will have to wear the cost of flying executives and directors to both meetings. BIL's headquarters are in Singapore.
Notwithstanding last year's $346 million loss, directors are asking for a fee rise to $US29,000 ($72,000) each. Shareholders will be able to vote by proxy.
Air New Zealand has come under fire for paying a taxable dividend to shareholders while asking them to buy into the rights issue.
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