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Time for a Tranz Rail reality check

By Peter V O'Brien

Thursday 24th April 2003

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Cynical investors and observers could be excused for sniggering last week at publicity given to the views of "analysts" about John Fairfax Holdings' proposal to buy newspapers from Independent Newspapers and the apparent woes of Tranz Rail.

Several were happy to have their names associated with views about the INL deal, which was favourable for the sharemarket and the local media company. Contrast that willingness for name disclosure to the mainly anonymous catty comments related to Tranz Rail's sinking share price.

Both phenomena were related to vested interests. Brokers and their employed analysts have a vested interest in "good" news that could lift share prices.

Opposing interests were involved in Tranz Rail's price slump. Driving a price down so shares can be bought at bargain prices is an old market strategy. Nervousness and uncertainty, bordering on panic, can be fostered through rumour and advice to sell shares.

People who had a vested interest in sustaining a price on behalf of powerful institutional clients hit back at the negativists. Comment, on condition of anonymity, has long been to protect a bruised reputation when things went wrong.

It's time for a reality check and the acknowledgement of some facts:

* The apparent "crisis" is about cashflow being sufficient to cover debt requirements;

* Tranz Rail, according to its spokespeople under pain of making false statements, is profitable;

* Tranz Rail is a crucial part of New Zealand's infrastructure and, irrespective of speculation and denials, could never be allowed to crash for political reasons, as opposed to economic theory;

* Any overseas-based predator/asset-stripper would face formidable regulatory investigations, given the company's monopoly in rail transport;

* Major New Zealand companies depend on Tranz Rail for carriage of substantial levels of exports and imports;

* Assuming those companies could reach agreement, form an appropriate consortium and produce realistic financial arrangements, there could be sound reasons for buying the company;

* Distasteful as it would be to free-market advocates and to some politicians, the bottom line is a government buyback, reconstruction and new path;

* An experienced financier with knowledge of operations involving heavy wear-and-tear machinery is now the financial controller;

* Another board reorganisation is probably inevitable. The board needs mechanical engineers with financial nous and people experienced in rail systems, rather than the usual New Zealand reliance on accountants, lawyers and various forms of financial dealers.

The company and the government need to realise a final, perhaps emotive point. Commercial and industrial interests and the public have had enough of Tranz Rail, as it had enough of Air New Zealand when investment companies with minimal knowledge of air transport ran the show.

The difference from two other news-making announcements last week was clear. The Fairfax-INL scheme saw an experienced and respected media group proposing involvement in another media company. All three parties (News Corporation is the third) knew what they were about.

A takeover offer from Switzerland-based natural resources group Xstrata for Australian mining and mineral processing company MIM Holdings was another case of experts dealing with experts. The proposal got some publicity in New Zealand but could have received more, given locals' involvement in the company, going back to when MIM was Mount Isa Mines.

Fairfax and INL had media dealing with media, Xstrata had mining interests dealing with miners but Tranz Rail (being PC) had the visually impaired dealing with a situation where 20-20 vision was vital. Visually-impaired (in an objective sense) analysts take note.

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