Things get desperate in New Zealand

THE desperate state of business in New Zealand was revealed when the Bank of New Zealand, which conducts 40 per cent of that country’s banking, disclosed it may have to write off as much as SNZI.29 billion in loans.

This was followed a week later by the

government in Wellington announcing

that it was pumping SNZ2OO million into the bank to prevent an international cri sis of confidence in the country’s largest financial institution.

The bank’s woes was the latest (but not the last) indicator of just how bad things are in the New Zealand economy. Sever

al major corporations, including the

Equiticorp group, have already toppled

since the sharemarket crash of 1987 and the investing public has shown almost total lack of confidence in most other

companies. Pacer Kerridge Corporation

Ltd, which operates the major cinema

chain in New Zealand and has property investments, has seen its shares go from more than SNZI4 to less than 10 cents in the space of two years.

It is becoming clear that the three overseas-owned major banks which oper ate in New Zealand had been reasonably cautious in the heady days before the sharemarket crumbled, but the Bank of New Zealand had been eager to lend, both to companies and to individuals, during the boom of 1986-87.

The end result was that the Bank announced a loss of $NZ633.4 million for the year to March 31, 1989, which came after the operating profit was more than wiped out by the provision of $1.29 million for bad and doubtful debts. It was the worse result ever reported by a New Zealand company.

In order to recoup some of the loss, the government (which owns 84 per cent

of BNZ) will effectively sell off 29 per cent of the share capital to a company controlled by America’s Cup yachting millionaire Michael Fay. The bank will make a 7-for-10 rights cash issue of shares, but instead of the government taking up its full entitlement to the new shares at a cost of SNZBSO million, it plans to divert $3OO million worth of shares to Fay’s company, Capital Markets Ltd. The end result will be that the New Zealand government will own 53 per cent of BNZ, Capital Markets 29 per cent and the public 18 per cent.

Observers in Wellington expect that Capital Markets will eventually move to acquire the remainder of the govern ment’s shareholdings. This will take some time, and would mean that Fay would have to raise considerably more capital; however, he has already indi cated that Capital Markets will soon res

tructure, presumably to enlarge its capit

al base. □