Chris Lee & Partners Ltd

Market News 24 June 2024

Johnny Lee writes:

Infratil is raising $1.15 billion as it looks to accelerate its growth into the data centre boom.

A billion dollars has already been raised via a placement to institutional and wholesale investors. This stock has settled and was raised at $10.15 per share. Infratil confirmed the offer closed oversubscribed, and significant buying entered the market following the closing of the offer.

Now, it is retail investors’ opportunity to participate. The balance of the raise - $150 million - has been set aside for existing shareholders who held stock as of 14 June. The closing date for the offer is 8 July, at the close of business that day.

The offer price is the same, or will be better, than the institutional offer. The shares will be allotted at a price of either $10.15 or a lower price equal to 2.5% below the average price over the five days leading up to the closing date.

This provides some protection to investors should the price decline during the offer period. There is some risk that the share price falls very late in the process - but investors can simply wait until nearer 8 July to mitigate against this risk.

As the record date has passed, shareholders are able to sell shares now without compromising their entitlement. The share price remains above the offer price, allowing shareholders the opportunity to sell shares now - locking in a price - to fund their investment into the offer if they lack short-term liquidity.

The process to apply will not be unfamiliar to regular share investors. A dedicated website has been established, and “Verification Numbers” have been sent from MUFG (formerly Link Market Services). Funds will be direct debited the day after application, and no interest is paid on funds withdrawn.

While investors have the option of applying for up to $150,000 worth of shares at the $10.15 price, it seems unlikely that most would receive this amount while the discount exists. Infratil has already confirmed that scaling may be applied to maintain proportional ownership.

This method of scaling - being based on the size of the existing holding - is commonplace now, after the Wild West era of the 2000s.

Twenty years ago, it was not uncommon for shareholders to deliberately own shares across multiple entities - their spouse, a joint holding, children’s accounts - in order to receive multiple invitations to participate in discounted capital raisings. Today, most investors would not benefit from such a strategy, except perhaps those whose proportional entitlement exceeds the maximum.

That proportional ownership has been defined as 13.6%, meaning shareholders with 1,000 Infratil shares can bid for 136 additional shares to avoid dilution. If the offer proves popular, investors bidding for an allocation above this ratio can expect some of their bids to be returned.

Infratil remains one of our best long-term performers, and this outperformance, combined with its successful long-term bond programme, has led to the company building significant goodwill with its investor base.

Infratil has also made considerable effort to explain the investment case for the capital raising.

The data centre industry remains extremely favourable for investment, and the popularity of both cloud computing and generative AI was cited for the need to accelerate Infratil’s exposure to the data centre sector.

This uptick in data centre usage will also lead to increased demand for electricity, with data centres being huge consumers of power. Infratil, of course, designs and builds renewable energy developments around the globe.

As with every such capital raising, there will be some who do not participate. There are always some who are out of the country, or have overzealous spam filters and do not receive the emailed invitation to apply. There will also be some who choose not to partake, or perhaps lack the liquidity in the timeframe provided.

Ultimately, the greater the discount heading into the closing date, the more popular the offer will likely be.

Last year, Infratil had an offer to raise $100 million from retail shareholders at $9.20. The company received bids for $320 million and used its discretion to increase the offer size from $100 million to $185 million.

Shareholders intending to participate in this new offer should keep a close eye on the share price over the next two weeks.

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Investors looking to leverage off the very rapid growth of the US market or diversify away from New Zealand, have led to a resurgence of interest in exchange-traded funds (ETFs).

The mixed performance from New Zealand’s growth stocks has further fuelled this push, with many investors drifting away from our traditional growth stocks, many of which are forecasting difficult short-term conditions.

By contrast, the NASDAQ is up 20% this year alone. Our market index is down 1%, and our index includes dividend payments.

ETFs are listed products, run by a manager who purchases underlying securities designed to mimic the performance of an underlying index.

Investors purchase one security, which gives them exposure to a particular sector, country, or strategy.

For US-focused ETFs specifically, there is an abundance of choice, even within New Zealand. The Smartshares offering has a broad range of options and includes USG, USV, and USF. These funds invest into various Vanguard funds listed in the US.

These ETFs, like the US stocks they invest into, typically pay minimal dividends and do not align with an income strategy. While income ETFs do exist - Smartshares has a Dividend ETF for this purpose - international ETFs like USG, USV, and USF are not designed to generate competitive dividend yields, instead designed to give specific exposures for investors to consider.

USG is the listed US growth fund, and of the three listed above, has the largest exposure to the main US technology stocks. 58% of the fund is invested into the US tech sector, with over a third of the fund invested into just three stocks: Microsoft, Apple, and semiconductor designer (and three trillion-dollar company) Nvidia.

USV is the listed value fund, with its largest allocations in the US Financial and Healthcare industries. Its largest holding makes up only 3% of the fund (Berkshire Hathaway) and its other major holdings include Exxon Mobil and Johnson & Johnson.

USF strikes a balance, with a mixture of US technology stocks and other sectors.

Across the ditch, Australia has a far more competitive ETF landscape, with the likes of Blackrock, Betashares, Vaneck, and Vanguard all providing a diverse array of options for investors to consider.

Amongst these options is the FANG ETF, which has maintained popularity for many years now due to its significant outperformance. Indeed, even the name FANG includes two stock codes - Facebook and Google - which no longer exist (now called Meta and Alphabet, respectively).

The FANG ETF today invests exclusively into ten companies, and now includes the likes of Tesla, Apple, Nvidia, and Snowflake. This reduced diversification is by design and means that significant outperformance or underperformance by one constituent will heavily impact the performance of the overall fund.

NDQ is another fund listed in Australia used by investors seeking specific exposures. NDQ is almost exclusively US technology stocks, with virtually no exposure to the US financial, energy, or utilities industries.

The Exchange Traded Fund sector is growing in popularity in New Zealand, as investors look to spread risk or invest in particular sectors or countries. Smartshares has led this charge within New Zealand, and combined with the smorgasbord of options in Australia, has led to investors now having options for virtually any desired exposure.

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Mercury Energy Capital Bond

Mercury (MCY) today confirmed it is opening a Capital Bond, with a minimum interest rate of 6.15% p.a. (fixed for the first 5-year term). Interest will be paid quarterly.

The bonds have a set maturity date of 30 years but include an election (repayment) option after 5 years, allowing Mercury to repay early. It is worth noting that Mercury has always repaid investors on the election date.

MCY is 51% owned by the New Zealand government and is a 100% renewable electricity company, generating power from nine hydro stations, five wind farms, and five geothermal power plants.

MCY will cover the transaction costs for this offer; therefore, clients will not have to pay brokerage.

Payment is due no later than Wednesday, 10 July.

If you would like a firm allocation for this bond offer, please contact us no later than 9 am Thursday, 27 June with an amount and your CSN.

Full details of the offer, including a presentation, can be found on our website.

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Travel

Our advisors will be in the following locations on the dates below:

5 July – Wellington – Edward Lee

11 July – Tauranga – Johnny Lee

12 July – Hamilton – Johnny Lee

Johnny Lee

Chris Lee & Partners Limited

Market News 17 June 2024

Johnny Lee writes:

The signing of a 20-year electricity supply deal between our generators and the aluminium smelter in Southland has been received with significant enthusiasm by those investors in the electricity sector, with a major headache now seemingly resolved.

The deal has been labelled a win-win for the smelter and the electricity providers. For the 1000 or so workers at the smelter, and their families, it should also serve as a relief.

New Zealand Aluminium Smelters, now entirely owned by Rio Tinto, also agreed to a 20 year demand response agreement. This means that if required by Meridian Energy, the smelter will temporarily reduce production to prioritise electricity distribution elsewhere, providing some insurance during our dry years. 

The sharemarket reaction from our generators was immediate, with most seeing 5% – 10% share price rises. Analyst re-ratings followed shortly after, including predictions around future dividends.

Contact and Meridian shareholders, in particular, are expected to benefit from the renewed certainty. Both companies made announcements to the exchange shortly after the news, pledging to review their dividend policies in the wake of the announcement.

Any increase in dividend will be very welcome. Contact Energy’s dividend in particular has been stagnant for the last few years, and expectations around its future outlook for dividends will be high.

Another consequence of this announcement is the renewed certainty for development projects in the years ahead.

The electricity sector has long advanced a view that the closure of the smelter would result in a significant overhang between electricity supply and demand, reflecting the smelters huge demand of our nations power. This led to some reluctance within the sector to commit to new developments and add capacity. Now, investments can be made based on expectations around electricity demand, with solar and wind projects likely to dominate that landscape.

Indeed, Mercury almost immediately announced an expansion of its Kaiwera Downs wind farm in Gore, committing nearly $500 million to the project. Genesis and Manawa both have significant capital expenditure earmarked for upcoming projects, and will be pleased to see the risk of disruption to the electricity market has waned.

The electricity sector remains favoured amongst income investors, although the rapid share price appreciation over the last month eventually saw some profit taking. The increased price has also meant some changes to the yields on offer. If the August results are accompanied with an uplift in dividend forecasts, as expected, this may serve to reset this consideration. 

Overall, the long-term certainty surrounding the smelter's future has led to a rapid increase in the value of some of our electricity generators. With the new certainty may come a renewed confidence with regards to future projects and shareholder returns. August’s reporting season will provide an opportunity for shareholders to better understand the full extent of this.

David Colman writes:

The Federal Reserve is the most influential central bank in the world and it provided its latest monetary policy and outlook for rates on Wednesday.

There was little surprise regarding the Fed Board of Governors voting unanimously to maintain the federal funds target rate (the US overnight lending rate) at between 5.25% and 5.50%.

The Fed, like the Reserve Bank of New Zealand, has an objective of inflation falling between 1% and 3% year on year with 2% seemingly the sweet spot.

Federal Reserve Chair Jerome Powell who bends ears with each monetary policy statement indicated that progress towards the 2% inflation target was modest.

Jerome noted that in the USA economic activity continued to expand, job gains have been strong, unemployment has remained low, and inflation had eased over the past year but remains elevated.

Forecasts, welcomed by the US sharemarket earlier in the year, that signalled multiple fed fund rate cuts have not come to pass leaving those with an appetite for lower rates with a weak constitution.

The Federal Open Market Committee (FOMC) participants, who meet and provide their views to inform monetary policy, had, in their previous assessment of appropriate monetary policy, forecast up to 3 rate cuts by the end of 2024 but on the latest projection materials this appeared to indicate that a single cut is now deemed appropriate. No one projected rate hikes.

‘Appropriate monetary policy’ is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability.

Looking ahead the median Fed Funds rate June projection is 4.1% for 2025 (up from 3.9% projected in March) and 3.1% for 2026 (unchanged).

These projections tend to be viewed by equity markets optimistically as company performance tends to improve if borrowing costs fall (or are expected to fall).

Whether the well informed Federally appointed experts’ forecasts come to pass is far from certain. The Fed Committee disclosed it does not expect it will be appropriate to reduce the target range without greater confidence that inflation is moving sustainably towards 2 percent.

The US equities market largely appears to have shrugged off Federal Reserve policy for much of the year with the S&P500 up 14% year to date and the Nasdaq up 19% over the same timeframe.

For comparison the S&P/NZX 50 is up a mere 0.7% year to date.

US indices have hit record highs this year and when sharemarkets move higher I tend to start expecting a correction of some kind which have happened time and time again in the past. It is easy to forget that markets can tumble in the middle of a bull run.

Index investing such as through ETFs (exchange traded funds) is thought by many as involving greater diversity which is often seen as a way to reduce risk to larger swings in value you might see in an individual company or sector. This thinking can be flawed when the fund (such as an index fund) includes a larger exposure to a given company or sector.

Currently, major market index values are heavily influenced by major technology companies with 10 companies combined weightings representing close to 50% of the Nasdaq100. This may not seem all that unusual for an exchange largely focused on technology companies but alludes to risk being concentrated in a smaller pool of companies than the 100 companies within the index suggests.

The gigantic US$45 trillion S&P500 includes 3 companies combined (Microsoft, Apple and Nvidia) that represent over 20% of the index.

Incredibly, just 29 companies combined represent greater than a 50% weighting of the same S&P500 index of 500 companies.

Nvidia, alone, is up 160% year to date and up over 3,300% in the last 5 years. Truly an exceptional rise in value associated with the demand for, and short supply, of its AI related chips, systems and software.

At the start of 2020 Nvidia had a market capitalisation of $144 billion (about the size of the entire New Zealand stock exchange) and now it over $3 trillion (about the size of the London stock exchange).

There is a danger that if Nvidia and a number of these larger companies slump in unison, with no companies growing sufficiently to take their place, the index values of major US exchanges, and likely multiple ETFs with exposure to these markets, would be disproportionately influenced.

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Mercury Energy Capital Bonds

Mercury has announced that it is considering making an offer of capital bonds.

MCY is a 100% renewable electricity company, generating electricity from nine hydro stations, five wind farms, and five geothermal power plants. It is also 51% owned by the NZ government.

The bonds will have a set maturity date of 30 years but will offer an election (repayment) process after 5 or 6 years, enabling Mercury the opportunity to repay early.

It is worth noting that Mercury is likely to repay investors on the election date.

The interest rate has not been set yet, but based on current market conditions, we expect the interest rate to be above 6.00% per annum.

MCY will cover the transaction costs for this offer; therefore, clients will not have to pay brokerage.

If you would like to be pencilled on the list for these bonds, please contact us promptly with an amount and the CSN you wish to use.

We will be sending a follow-up email next week to anyone who has been pencilled on our list once the interest rate and terms have been confirmed.

Travel

Our advisors will be in the following locations on the dates below:

19 June – Lower Hutt – David Colman

19 June – Christchurch – Johnny Lee

25 June – Napier – Chris Lee

11 July – Tauranga – Johnny Lee

12 July – Hamilton – Johnny Lee

Chris Lee

Chris Lee & Partners Limited

Market News 10 June 2024

Johnny Lee writes:

If there was a single stock responsible for ‘’water cooler talk’’ this year in New Zealand broking houses, that stock would be Synlait Milk.

Synlait’s future – or potential lack thereof – has spawned numerous speculative news articles recently and seen volatile share (and bond!) pricing in Synlait.

Last week saw an important update to these share and bondholders, adding yet another piece of the puzzle ahead of the December repayment date for the retail bond.

Synlait intends to propose a related party transaction to its shareholders, whereby major shareholder Bright Dairy agrees to lend $130 million to Synlait. Material, related party transactions require shareholder approval. The date of the shareholders meeting to approve this transaction will be announced soon. 

The $130 million from Bright Dairy would be used to meet Synlait’s debt obligations to its bank lenders, which are due on the 15th of July after being extended in March. 

The terms of the proposed loan from Bright Dairy are not yet publicly known.

Synlait also again flagged its intention to raise equity from shareholders. Shareholders are now very much on notice – anyone remaining a shareholder at this point can expect to be tapped for additional cash in the near future. 

Dairyworks is no longer actively on the chopping block. Synlait has indicated that no bids were received at a level it would accept, although it left the door open to the idea of further offers. 

EBITDA guidance was maintained but Synlait has indicated that it is likely to arrive at the lower end of the range. The range previously indicated was $45 to $60 million. Last years EBITDA was nearer $90 million.

Perhaps most importantly, Synlait has confirmed that ‘’a significant majority’’ of its farmers have issued notice that they intend to cease supplying with the company, beginning the two-year exit period.

Synlait, clearly, needs to convince these farmers to withdraw their cessation notices and remain with the company. Feedback from the farmers so far has indicated that most are leaving due to fears around the company’s balance sheet, which, in theory, is an issue that can be resolved. The bigger question may be: if this issue is resolved, will they return to the fold?

The next step for Synlait shareholders will be the vote. Bright Dairy, as the related party, will not be permitted to vote. This means a2 Milk’s vote will be proportionally larger and could end up determining the fate of the company. a2 has not yet indicated its intentions with regards to the vote, no doubt waiting to see the terms of this related party loan. It is well known that a2 Milk has nearly a billion in cash on its books, and has seen its share price climb 70% this year. a2 Milk’s market capitalisation is now over $5.5 billion.

The loan terms, once disclosed, will be crucial in determining whether this plan succeeds. There is clearly an array of different objectives at play with the vote – between a2 Milk, Bright Dairy, smaller shareholders and, of course, bondholders (some of whom will be voting as shareholders) – each grouping will have a different desired outcome for the company. 

It is worth highlighting that the proposed $130 million loan would be many times greater than the value of Bright Dairy’s holding in Synlait (nearer $30 million). Indeed, $130 million is greater than the entire value of Synlait (nearer $80 million). Bright Dairy will prioritise one exposure over the other.

The equity raise will also be important. Assuming it is discounted, the value of the raise may be either insignificantly small, or of a size that sees shareholders asked to commit multiple times their current exposure. Will an underwriter commit to backing such a raise in this climate? 

For now, it is ‘’wait and see’’. Clearly, Bright Dairy sees value in Synlait – at the right price. Shareholders will need to determine whether this price is fair relative to their own expected gains over the same time period. Other options do exist, as unpalatable as they may seem.

In the meantime, the water cooler will remain a popular destination.

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There was a second announcement from Synlait that preceded this one.

Synlait successfully applied for a waiver from the NZX, effectively allowing the company to breach the NZX listing rules.

Waivers are not unheard of and are usually made when situations occur that result in a particular rule no longer making logical sense. Waivers commonly see conditions attached that protect shareholders from the consequences of the permitted rule breach.

In this case, Synlait fell afoul of rule 5.1.1 b, which effectively states that shareholders must approve transactions above a certain threshold. Specifically, the threshold is 50% of a company’s average market capitalisation.

Synlait’s market capitalisation is currently around $80 million.

The rule exists for good reason. It protects shareholders from companies agreeing to deals, considered to be significant to shareholders, without their consent. Normally, a transaction greater than half the value of your company would be considered significant. 

Synlait’s argument is that it routinely enters deals involving more than $40 million of dairy (or dairy-related) products. It would be absurd to ask shareholders to approve each individual sale. Realistically, almost all shareholders would find such meetings to be a waste of time.

The NZX granted the waiver, on the explicit condition that the deals entered into are in the best interests of shareholders, do not change the nature of Synlait’s day to day business, and are transactions that are in the ordinary course of their business. The waiver lasts 12 months.

The waiver, and the protections granted alongside it, make sense and provides a picture of the precarious position Synlait finds itself in.

Synlait, and its shareholders alike, will be hoping that the waiver does not need to be renewed next year.

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The other update of note last week was from casino operator and entertainment provider Sky City, which provided a guidance update, following on from the previous update issued in February.

The share price fell once again following the announcement, reaching near 25-year lows. Millions of shares changed hands, suggesting that there at least remains some conviction on the buy side at these levels. 

Sky City has dealt with a number of wounds in recent history. The share price was amongst the hardest hit during COVID – when tourism dropped to zero - and has had to adapt to the trend of ‘’investor activism’’, with some investors choosing to distance themselves from the gambling sector.

Some wounds were self-inflicted. Penalties from various regulators have actively diminished shareholder value, and there remains some possibility of further shareholder pain in August, when a hearing is scheduled to take place regarding its New Zealand licence.

The update last week included yet another downgrade. Both earnings and net profit are expected to be lower than guided just months prior, with Auckland highlighted as operating within a particularly challenging environment.

Part of the downgrade was due to transitory factors – one off items including the delays with Horizon Hotel, and various investments into compliance obligations.

The update also included confirmation that the company was suspending its dividends going forward. The company declared a dividend in its February result but now believes the worsening conditions justify another suspension of dividends.

The company hopes to reinstate dividends in 2026. 

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Travel

Our advisors will be in the following locations on the dates below:

19 June – Lower Hutt – David Colman

19 June – Christchurch – Johnny Lee

25 June – Napier – Chris Lee

11 July – Tauranga – Johnny Lee

12 July – Hamilton – Johnny Lee

Please contact us to arrange a meeting.

Chris Lee & Partners Limited

Market News 3 June, 2024

Johnny Lee writes:

A FURTHER three large companies have reported to market, with Fisher & Paykel Healthcare, Mainfreight and Ryman publishing their financial results last week.

Fisher & Paykel reported a 10% increase in revenue to $1.74 billion, with a net profit of $132 million. Underlying net profit was $264 million, a 6% increase. 

The difference between the two figures is made up of the property devaluation from its Karaka land - which was flagged well in advance - the change in legislation removing tax deductions for building depreciation, and the cost associated with the recall of one of its legacy products. 

Its hospital revenue bounced back after two years of declines following the bonanza result from 2021, a Covid-related anomaly. Homecare reported its best ever result, with revenue climbing 18%.

The dividend lifted once again, this time by half a cent, continuing the trend of gradually increasing dividends. The annual dividend of 41.5 cents per share is more than triple that of 2014, providing a healthy reward for those investing long term. 

Fisher & Paykel Healthcare has always been and will continue to be a long-term investment. The Karaka land purchase – to develop a research and development campus over a 30-year time frame – is a good example of the decision-making process from the board. Such investments will not suit all investors, but the long-term performance has been phenomenal, and the sector remains heavily favoured by local and international investors.

FPH’s share price rose about 5% following the announcement.

Mainfreight has reported a decline in profit, with revenue down 17% and net profit down 35%.

The result was pitched as a return to the long-term average, after a sustained post-Covid period of elevated freight prices.

Mainfreight has always had a particular style with its investor communications, and this result was no different. Those divisions within the company that performed were labelled satisfactory, while those that did not were highlighted and described as disappointing. Words were not minced.

The dividend was maintained, with the company choosing to lean on its balance sheet to provide consistency in the dividend despite the falling profit. While this has limits, it is clear that Mainfreight wants to be cautious and consistent about dividend growth, rather than increasing during good times and cutting during leaner periods.

Conversely, the staff discretionary bonus was reduced. The decision to reduce it in line with declining profits should reinforce to staff that the bonus is truly discretionary.

With regards to the results, there was a distinct regional bias, with Australia and New Zealand outperforming Asia, Europe and the Americas. All five regions saw revenue and profit declines.

On a product basis, transport and warehousing saw profit falls, but the real decline was seen in air and ocean. However, the company notes that the second half of the financial year saw some positive signs, indicating – perhaps – that the trajectory has changed to a more positive one. 

This led to a more positive guidance moving forward, with the company reporting that post year-end results – meaning the performance following the 31st of March 2024 – have shown some signs of improvement.

Mainfreight has had a quiet year on our exchange, with its share price close to where it began the year, currently down about 1%. It is clear that management is unsatisfied with the results so far, but believe there will be improvements to come in the medium term.

Ryman’s full year result saw an 18% increase in revenue, but a 98% reduction in net profit. The net profit accounts for changes in valuations and impairment losses, which were significant. Several sites within its landbank saw sharp declines.

Analysts rarely consider net profit when evaluating Ryman, focusing more on cash flows from developments and the sales (and resales) of its Occupational Rights Agreements. The day-to-day variations of land values are not irrelevant, but the financial well-being of the company relies more heavily on its cashflows and its subsequent ability to fund its debt load and growth ambitions.

Dividends remain suspended, with the company pledging to review the dividend policy again in two years’ time (2026). The market remains pessimistic with regards to these dividends, especially as its debt levels cause unease. Expectations should remain low.

These debt levels actually rose over the year, from 2.3 billion to 2.5 billion. Fortunately, this increase was also accompanied by an increase in cash flow from its ORA resales. 

The company did note that construction of new villages has failed to meet its targets. This is due to a trifecta of negative headwinds – construction costs are rising, construction timeframes are growing longer, and interest rates remain elevated. These are combining to squeeze margins for Ryman’s construction projects.

There has been no progress on appointing a permanent CEO following Richard Umbers resignation in April.

Looking forward, the company hopes to finally be free cash flow positive next year. Part of this will be driven by a slowdown of their land acquisitions, as the company adopts a more cautious approach to its pace of growth. This will also lower construction expenditure, a major component of the ‘’outflows’’ that contribute to net cashflows.

Overall, market expectations for this result were low, and the result was broadly in line with these expectations. It is clear that the rebuild of Ryman will take some time. Debt levels remain front of mind, and shareholders will be hoping to see some real progress towards tackling this debt mountain ahead of the 2026 dividend review. 

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NEW Zealand Oil and Gas has announced its intention to delist from the New Zealand Stock Exchange. The final day of trading is expected to be 24 June.

Despite the name, NZO intends to have its sole listing on the Australian exchange. The company did not discuss a name change.

The reasons provided for the delisting were: to enhance liquidity by concentrating on one exchange, the gradual pivot from the company to assets outside of New Zealand, to save costs, and to ‘’more accurately represent the underlying value of NZO’s shares’’.

This follows comments made by former and current Shell executives, who discussed the idea of leaving the London Stock Exchange to list on an American exchange, with suggestions that American investors price oil and gas assets more favourably.

It is certainly true that oil producers rarely inspire investment from New Zealanders, especially when compared to Australians. This lack of local interest could be attributed to both concerns around our regulatory certainty and concerns around the environment. Australian investors will be more accustomed to the various risks of investing in oil and gas, with the likes of Santos, BHP, Origin and Woodside all included in the main sharemarket index of Australia.

New Zealand Oil and Gas has had a long history on our exchange, dating back to its listing in 1981. Its 2008 result, arguably its peak, reported a 5,429% increase in revenue, $250 million of cash in hand and a plan for growth. Between its investments in the Tui oilfield, the Kupe gasfield, and the Pike River Coal mine, the company was confident in its strategy and outlook. Its share price was nearly $2, and the company had just raised nearly $200 million via a rights issue to shareholders, leaving the company valued at around $700 million. 

Ten years later, the New Zealand Government ceased new offshore oil and gas exploration permits. Combined with the subsequent closure of the Marsden Point refinery, New Zealand now imports refined oil from overseas producers. The world had changed. 

For New Zealand Oil and Gas, this changing investor sentiment towards energy investments has meant most of its assets are now based in Australia and Indonesia. It still has some exposure to the dwindling Kupe and Maari fields, but it is clear that the company feels there are better opportunities abroad. NZO’s market capitalisation today is nearer $90 million, similar in size to Synlait Milk or Pacific Edge.

The departure marks yet another company leaving our exchange. Between the various takeovers and de-listings, our exchange continues to shrink.

For NZO shareholders, the options now are straightforward – they can either retain their holdings as an ASX listed company or sell their shares before 24 June. This is already beginning – small volumes of shares have begun trickling through the exchange each day since the announcement – as investors accept the end of what was once a major name on our exchange.

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Infratil Limited – 7.5-Year Senior Bond

Infratil has announced its plans to issue a new 7.5-year senior bond. Full details of the offer can be found on our website.

Infratil is an infrastructure investment company with significant holdings in Digital Assets, Renewable Energy, Healthcare, and other infrastructure assets. It anticipates earnings for FY2025 to be approximately one billion dollars.

The bond will have a fixed interest rate of 7.06% per annum, with interest paid quarterly.

Infratil will cover the transaction costs for this offer, accordingly clients will not be charged any brokerage fees. 

The offer will comprise two separate parts:

The firm offer is open now with payment due 13 June.

Exchange offer opened on 31 May 2024 (following the Firm Offer). Under this offer, all New Zealand resident holders of the IFT230 bonds maturing on 15 June 2024 will have the opportunity to exchange some or all their maturing bonds into these new bonds.

If you are interested in a FIRM allocation for these bonds, please contact us promptly with the desired amount and the CSN you wish to use.

If you are an existing IFT230 bondholder and would like to exchange your bonds into this offer, please inform us at the time of your request.

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Travel

Our advisors will be in the following locations on the dates below:

5 June – Nelson (FULL) – Chris Lee

6 June – Blenheim (FULL) – Chris Lee

11 June – Tauranga – Chris Lee

13 June – Auckland (Ellerslie) - Edward Lee

19 June – Lower Hutt – David Colman

19 June – Christchurch – Johnny Lee

25 June – Napier – Chris Lee

Please contact us to arrange a meeting.

Chris Lee

Chris Lee & Partners Limited