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BIL investors should bail out

By Peter V O'Brien

Friday 21st March 2003

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BIL International's controlling shareholders should follow the advice it gave to the holders of the 54.2% of UK-based Thistle Hotels it did not already own. It said Thistle's development would best be improved in the private arena.

BIL's Asian corporate/institutional controllers would do small shareholders ­ many still based in New Zealand ­ a favour if they made an offer and put the company into the "private area."

The BIL interim report for the six months ended December 31 was released in New Zealand on March 14. It was dismal reading when stripped of the upbeat hype companies use to project optimism about the future while putting responsibility for the past on previous administrators.

The report said (again) its primary role was an active investor with strategic shareholdings and "active investment management aimed at extracting and maximising shareholder value." Yet there was little extraction and maximisation of shareholder value over the past 12 months.

"Net asset value" (shareholders equity) was $US711.2 million on December 31, compared with $US670.5 million on the corresponding day of the previous year and $US716.9 million at June 30 last year, the last restated for a dispute over amounts said to be owed to Thistle Hotels.

BIL's key investments at interim balance date were Thistle Hotels (54.2%), the Hawaiian Molokai Ranch (100%), Singaporean company Fraser & Neave (now about 7% after realisations), Weeks Royalty (based on royalties from oil production in Australia's Bass Strait), Fiji's Denarau Properties (100%) and Air New Zealand (5.4%).

It would be interesting to learn how 5.4% of Air New Zealand was a "key investment," given the government controls the airline and that any deal with Qantas needs regulatory approval or a government overrule.

It is worth quoting chief executive Arun Amarsi given the statement's apparent extravagance: "Over the last few years, BIL has been actively addressing legacy issues relating to underperforming assets, excessive holding company cost structures and high levels of corporate debt.

"While most of these legacy issues are largely addressed, our biggest investment, being a 45.8% investment in Thistle Hotels, has not performed to its potential and its share price has consequently suffered.

"We will continue to maximise values for our shareholders from our existing assets as well as identifying new investments which meet our risk and return criteria."

The reference to excessive "holding company cost structures" was a bit rich, because a Singapore-based company held its 2001 annual meeting in Bermuda (where it is registered) and last year's in Hawaii, both a fair way from Singapore.

The venues were beyond the reach of non-corporate/institutional New Zealand shareholders and their ability to affect decisions would be nil.

Mr Marci's talk of "legacy issues" was even richer.

The controlling shareholders were involved in BIL many years ago. It is appropriate to ask if they had responsibility for the "legacy issues" and, if so, why they did not move earlier.

A possible answer could be the controllers have minimal interest in anyone other than themselves but prefer to keep the company with a primary stock exchange listing in Singapore, as well as secondary listings in London and New Zealand.

BIL gave up its Australian listing after the introduction of new rules.

Here we have a company registered in Bermuda, operating from Singapore and with (disclosed) New Zealand investments confined to an ineffectual holding in Air New Zealand. It had another loss ($US18 million for the six months ended December) after a ­ restated ­ deficit of $US21.8 million for the year ended June 30, 2002.

Cashflow from operating activities was negative $US16.5 million (December 2002, negative $US27.2 million, and June 30, negative $US35.5 million). There was a positive investment cashflow of $US28.3 million in the six months ended December.

BIL's share price on the New Zealand exchange was 45c on March 14, down 4c, or 8.2%, on 2002's closing price of 49c. The 2002-03, highs-lows, were, respectively, 79-30c and 56-42c.

Any New Zealand shareholders should sell the stock, irrespective of the average cost of their holdings unless:

* they are playing price movements for trading gains;

* fund managers are into the same trading game; and

* there are hopes the Asian controllers will take out small shareholders at a "reasonable" price.

The last would be a rational decision, but the history of BIL in recent years suggests an agenda other than a rational approach to shareholders with relatively small stakes.

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