Tranz Rail is on the wrong track

By Duncan Bridgeman

Friday 26th July 2002

Tranz Rail shareholders looking for better news only received more gloom this week.

Despite the rail carrier opening up its books on Tuesday and announcing positive growth for next year, the company took another hit from rating agencies.

Late on Wednesday Standard & Poor's put the company on creditwatch with negative implications, citing weaker operating performance and concerns about the company's financial flexibility as a result of planned writedowns.

Tranz Rail announced on Tuesday it would write down up to $170 million of its total asset base of $933 million.

Managing director Michael Beard said structual changes had taken longer than expected, which would lead to a lower year-end result.

The company forecast earnings before interest and tax of $26 million this year and $55.8 million in 2003.

Tranz Rail shares have falle to near historical lows in recent weeks following a July 6 Stock Exchance query about a more modest 14.3% fall since June 20.

The National Business Review Shoeshine column of April 5 warned investors to be wary, citing "a worrying cocktail of overvalued ssets and shrinking profits."

Back in March Moody's Investor Services cut its outlook for Tranz Rail from stable to negative following a feeble interium profit announcement.

Moody's said the next 12 to 18 months would be a critical period for the company to demonstrate improved profitability from its restructuring.

Tranz Rail announced this week it would complete its exit from all pasenger train services with the sale of Wellington's Tranz Metro network and an exit from its current holdings in long distance passenger services.

It also said it would re-examine the potential for using Clifford Bay as its South Island port of operations.

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