Embattled Tranz Rail plans rights issue

By Nick Stride

Friday 30th August 2002

Tranz Rail is weeks away from unveiling a heavily discounted rights issue to shore up its weak balance sheet.

Market sources said yesterday the company was holding a "beauty parade" of investment banks wanting to organise the issue and had secured support in principle from its major institutional shareholders.

The rail carrier is under threat of credit rating downgrades that could trigger covenants in its bank loan and lease agreements.

Both Standard & Poor's and Moody's Investors Services have the company on negative watch after poor operating results and heavy writedowns in the last financial period.

Tranz Rail is also negotiating with its banks for the October renewal of a $500 million credit facility.

Chief financial officer Wayne Collins declined to comment, beyond saying the company's capital structure was constantly under review.

Sources said the company's largest institutional shareholders, who together own more than 40% of the shares, feel they have little choice but to support an issue.

All are showing heavy paper losses on the shares they bought in February from Fay Richwhite, Pacific Rail, and Berkshire Partners.

By supporting and underwriting a rights issue at a big discount they will be able to "average down" their entry price and reduce paper losses.

Tranz Rail shares, which hit a 12-month high of $4.51 earlier this year, have recently traded as low as $1.90.

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