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Auditor change drives Tower's huge writedown

By Nick Stride

Friday 23rd May 2003

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Massive writedowns announced by financial services group Tower look to have been forced on the company by its new auditors, PricewaterhouseCoopers.

PWC took office on March 27, less than a month ago, and Tower on Wednesday blamed $135 million of $190 million in writedowns on "a change to the application of accounting standards."

The company carries $634 million on its balance sheet as "excess of directors' valuation of net tangible assets of subsidiaries." The item has been there since Tower demutualised in 1999.

Under the new treatment the item will be amortised and the writedown arises from retrospective amortisation for the past four years.

Chief executive Keith Taylor said despite the writedowns the company's net tangible asset backing stood at $3 a share.

All eyes were on Guinness Peat Group yesterday as the market digested the announcement of a $200 million capital raising.

The raising and writedowns were only two elements in a triple whammy of bad news.

Tower said its operating profit for the first half of the financial year would be between $3 million and $6 million.

As it made more than $5 million in the first quarter that implies it traded at breakeven or at a loss in the second but it gave no explanation for the deterioration.

It also flagged $190 million of writedowns and said it would seek to raise $200 million of fresh capital.

The news sent the shares down 82c in the first three hours of trading, wiping $144 million from the company's already battered value.

In early trading yesterday the shares recovered 5c to $1.43 but they have lost more than half their value since the beginning of last year.

Tower said its announcements were driven by continuous disclosure requirements but analysts said it had done itself no favours by putting out its news without details of its operating difficulties or the proposed capital raising.

GPG, which holds just under the 10% shareholding cap which expires in September, said it had participated in board discussions and supported Tower's plans.

Analysts speculated the board had already agreed GPG would underwrite the capital raising, a move that would almost certainly allow GPG to cross the 10% threshold and so would require Tower's other shareholders to vote to remove the cap.

Even if an investment bank underwrote the issue, the cap would still need to be removed because of the risk the underwriter would end up with more than 10%.

Tower spokeswoman Karyn Fenton said the company had nothing further to say about the capital raising but hoped to be able to announce the arrangements next week.

One possibility is that Tower will seek to raise the capital through an issue of convertible notes rather than shares, a move that would not please Tower's institutional holders.

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