Taking Stock 30 May 2024

AS we concluded this year’s round of seminars, the highlight was to observe the number of regular attendants of the seminar who had shifted their investment focus, at least in part, to overseas markets.

Most attendants were retired people. Most spend their income in NZ and largely derive their income from bank deposits, bonds, excellent dividend-paying NZ companies and often from small allocations to listed property trusts.

Those with ample capital and income have taken up the suggestion of seeking growth from overseas markets where for at least two years two sectors have provided handsome returns, not achievable in NZ.

Offshore returns have not always far out-performed those available here.

In the period pre-2018, the NZ market, so income-centric, had often out-performed others.

Many put this down to our use of a gross index whose growth includes dividends paid. Very few indices would use the same method of calculation.

But another factor was the varied international response to Covid, which differed significantly from ours, very few repeating the sort of oafish error that cost NZ $11billion through the failure to negotiate the bond buyback with the banks, a loss that has led to higher Crown borrowing and higher debt servicing costs.

To be fair, Britain, which we often ape, also messed up their version of this arrangement, the UK incinerating 100 billion pounds through similar stupidity.

Some of our Covid response was logical, reflecting our failure to build adequate hospital beds, some was effective, but the government legacy can no longer be hidden. The taxpayers will for decades be paying the extreme costs of servicing our over borrowings.

Investments here are handcuffed to the economy. The keys to the handcuff have been handed to our overseas suppliers of capital, the wealth funds that decide how much they will allocate to NZ, based on their judgement of our policies and leadership. It is their money that influences our equity and debt markets.

Between 2019 and 2023, offshore support for our markets dwindled. Indeed, at our last bond tender just 22% was sold to offshore funds. The historical average is nearer 60%.

Irrespective of what Nicola Willis announces in today’s presentation of her first budget, the evidence suggests it will be hard to reattract offshore interest unless our offer of interest reward is generous.

Hefty fiscal deficits and trade deficits, and growing needs to service increasing debt at high interest rates, are not attractive signals for those who can choose where to direct their funds. Nor does the world applaud our refusal to address a tax on realised capital gains.

It is illustrative to look at how the different sharemarkets have responded to short-term trends this year. Here are the changes to sharemarket indexes this year (as at 28 May):

- Dow Jones (US) +3.66%

- S&P 500 (US) + 11.21% 

- Nasdaq (US) +12.72%

- FTSE (UK) +7.50%

- TSX (Canada) +6.5%

- Stoxx (Europe) +11.37%

- DAX (Germany) +11.59%

- Ireland +14.97%

- AEX (Holland) +16.32%

- OMX (Sweden) + 9.53%

- OMX (Denmark) +21.18%

- MOEX (Russia) +10.35%

- JSE (South Africa) +2.94%

- ASX (Australia) +3.83%

- Nikkei (Japan) + 15.49%

Our NZ index, which INCLUDES dividends, has grown by 0.11%.

Fairly obviously those who responded to our seminars of earlier years by shifting some money into other markets have had superior returns.

Though there is great divergence between our best and worst KiwiSaver fund managers, all of their clients will have had some benefit from the investment by their managers in the world’s leading technology stocks and maybe the leading stocks in pharmaceuticals and health.

In the US a small number of star performers have more than offset the somewhat miserable returns of many in the less attractive sectors.

Few KiwiSaver funds will have dabbled in the emerging markets of volatile countries but there have been inexplicable rises, admittedly from depressed bases, in several unlikely countries where fund managers have speculated:

- Argentina +63.5%

- Columbia +21.0%

- Venezuela +13.6%

- Turkey +42.9%

- Nigeria +30.5%

- Pakistan +21.8%

It is fair to note that these market returns would be very much lower if the investor had failed to hedge the currency. Such hedging would not have been inexpensive.

Investors who have sufficient capital to seek growth, having siloed the capital they require to ensure their future, will have had spurts in the value of their portfolio if they chose well when shifting money offshore.

Nor is it too late to consider this option.

The NZ short-term headwinds are strong.

Sane policies may be resisted because of social dysfunction and, arguably, a Wellington-based cabal with social ideology that is unattractive to foreign capital managers.

The response to our seminars indicate that investors are alert to these issues and will continue to reallocate to the most promising sectors in countries with a more resilient balance sheet than our own.

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THE recently published census may have been troubled by getting sections of the public to respond but the data it supplies remains relevant and valuable to investors.

So, too, has there been value in recent analysis of immigration statistics. Combined they show that New Zealand’s population, now exceeding 5.3 million, is on a trajectory to reach six million within a decade or so. Of the increase a high percentage of immigrants will have been born in India, China and, less so, the Philippines.

Investors looking for encouragement to invest confidently in NZ might contemplate what these figures imply for our long-term future. Currently those self-defined as Asian total around 15% of our population. Over the next decade that percentage, on current trends, will reach 23%.

Some may read these trends as positive when they consider the following:

1. Asians are now 15% of the population but are around 2% of the prison numbers

2. Asian reliance on welfare seem to be similarly low, around 3%.

3. Asian students who attend school regularly are the highest in percentage terms of any ethnic group.

4. Asian health workers are a disproportionately high percentage of this sector.

Investors with a long horizon may feel encouraged by the statistical implication that our population growth will include more people with an affinity with our social objectives.

More sobering is the dramatically lower fertility rate in NZ, the reproduction rate now at just 1.5 per couple, a long way off the 4.0 number that was recorded in the 1950s.

One obvious question posed by rising population numbers but lower numbers of children relates to the future of the housing market.

Fund managers believe build-to-rent is a sustainable trend. Builders believe smaller dwellings on smaller land parcels are inevitable. The brilliant innovator and disruptor Nick Mowbray believes that software-designed, prefabricated houses will play a major role in the housing market solution. 

GJ Gardiner is apparently the largest and most trusted of our home builders. Would it achieve enhanced capability if it listed on the NZX, raised capital, and sought to lead the home building market with skill, as Fletchers once aspired to do?

The census is useful. It enables us to observe trends.

If any government has mis-governed Kainga Ora (Homes and Communities), constantly changing its objectives and measuring it as though it were a commercial entity, would this lead to the private sector being left to solve an undoubtedly large problem?

Consider this poignant statistic: in the early 1800s NZ’s population was about 100,000. In the years just after the Second World War, NZ reached two million (in 1950). In 2035 we seem destined to reach six million, yet with a declining reproduction rate, somewhat lower than self-replacement.

Longevity reigns, our population mix is changing. Investors should be paying attention.

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RYMAN Healthcare will likely be a leading player in coping with the longevity phenomenon.

Its current balance sheet clearly needs repair, its pricing model has been too lean, yet the security and care offerings combined with all the lively activities it provides suggests the likes of Ryman will remain in great demand.

It is highly ironic that two years ago we had screeching noise from someone whose career has always focussed behind the sponsorship of the public purse, loudly opining that the likes of Ryman were profiteering and exploiting their residents. The media gave the view oxygen.

In the past two years the targets of this baloney have seen their market values slashed by more than half, hardly endorsing an amateur’s view that profits were too high. Nor are the shareholders, who put up capital and take risk, getting any return for the risk they take.

The criticism was based on childish research, rare anecdotal complaints, and utter ignorance of the immense financial challenges of coping with rapid growth in demand, stubborn refusal of the government to pay adequately for access to the care the Crown demanded, and the increases in the cost of building materials and nursing care.

No government will ever build a care model similar to those offered by the various retirement villages which offer hospital-like care facilities. Nor would anyone in need of care choose a public facility if they could afford the services of the likes of Ryman, Summerset, Oceania, BUPA and the like.

In my view, these providers, struggling to get fair returns for the risk they take, will overcome some obvious challenges.

For example, Ryman must surely reduce debt, possibly with a significant capital raise. It seems none of its domestic competitors could afford to buy Ryman’s individual villages and rebadge them. Ryman must increase its charges and retain a higher figure to equate with its deferred costs, this being the model that allows the residents to “buy now, pay later”.

Ryman and its competitors offer the elderly a lifestyle that 50 years ago was unimaginable until the wonderful Waikanae visionary, the late Lloyd Parker, envisaged a retirement based on a healthy, green environment with access to care and fellowship in a secure, affordable village. He built Parkwood in Waikanae with NO capital, funded entirely on debt, sponsored by the community who arranged voluntary labour, creating a village that remains, 50 years later, on the top rung of the sector’s ladder.

Today’s different operators followed the dream he converted to reality.

My guess is that in 50 years’ time the likes of Ryman will still be seen as leaders in providing solutions that ensure the elderly are rewarded, not punished, for their longevity.

I greatly admire the endeavours of those people who create and maintain these services.

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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 opens tomorrow, 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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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 office@chrislee.co.nz   

Chris Lee

Chris Lee & Partners Limited

Taking Stock 23 May 2024

OF THE two groups of people who buy into discounted share placements, one group usually is signalling long-term belief in the company and is using savings to invest.

The other group usually is signalling a punting gene and is unafraid of borrowing money with which to go to the races.

Believers in the future of a company will be pleased to contribute capital to facilitate company plans, expecting that over time the company will prosper, helped by the additional capital.

Punters are equally welcomed by the company seeking money.

Once banked, the money will be used by the company to progress its plans. The company will have little interest in whose hands the punters’ shares eventually land.

Punting fund managers are those who gamble with other people’s money and rely on occasional windfall gains to feed their bonus pool.

Big punters, especially in Australia, participate in most placements, sometimes taking the view (with other people’s money) that most recipients of placement money will make faster progress because of the money received, and enjoy a share price increase in the short term.

As was the case with Ryman Healthcare in NZ the money raised can be used to extract the company from the demands of its lenders, as well as to contribute to growth.

When Eroad had its placement at 70 cents last year, it had no debt but needed cash to accelerate its marketing in America and, perhaps, to spend on research and development.

ERoad’s shares are now about 20% higher, rewarding those who took up the placement.

By contrast, those who took up the Eroad placement in earlier times, at $5.70 per share, benefited only if they subsequently sold when the shares rose to $6.50 (approx). The share price has since faded to current levels (94 cents at time of writing).

My guess is that Eroad punters using borrowed money, as most punters do, sold out and profited. The punters won. True believers are losing.

In Ryman’s case there should be another placement soon, perhaps priced around $3.50. The believers would participate. The punters would punt. (Some market commentators disagree, believing that banks will not be pushing for capital increases. My view is that reliance on banks is a risky tactic.)

Ryman’s last placement was at $5.20. The shares are now priced around $4.00.

I was reminded of these short-term outcomes of placements that are largely filled by punters after the gold explorer Santana Minerals succeeded with a recent offer, accepting over-subscriptions that most certainly came from punters, the highly successful Regal Fund in Australia undoubtedly the biggest punter in mining stock placements.

Regal has often been Santana’s largest shareholder yet is a fund that trades hourly and rarely holds shares for long.

Regal is a fund manager, arguably Australia’s most successful in terms of high returns. It specialises in feeding its clients’ money to promising miners, backing its research to pick the best prospects with which to trade.

I have no evidence to support this, but my bet is that Regal is always a major sub-underwriter of the placements to which it subscribes and will collect up to 5% in “underwriting” fees. This means if a share is placed at $2.00, it gets paid 10 cents. Thus it can sell out at a “loss” of 10 cents if its bank lending it the money for the punt demands repayment, breaking even because of its sub-underwriting fee.

If it sells at $1.95, it has a nice nett surplus (five cents).

Of course, in a tailwind it sells at more than $2.00 and makes an instant addition to its bonus pool, perhaps sharing a little with those whose money it manages. I am not sure who collects the sub-underwriting fee. I suspect it is not the Regal investor, but the Regal manager.

If Regal were forced to sell at less than $1.90 it might have a loss, but it might not.

Again, I am guessing that Regal often would be “gamed” by its competitors if the opportunity arose. Its competitors would enjoy that rare opportunity.

This could occur if its competitors (i.e. brokers and other fund managers) suppressed demand for a few weeks, forcing Regal to sell when there was restricted buying demand. As Regal itself is not exactly unwilling to “game” others, any losses would be lamented only by those with the kindest genes.

And, of course, there is every chance that Regal might have pre-sold before the placement, at prices well above the $2.00 example, and might simply be happy to lead the price down and pick up any shares at less than $1.90 to replenish its portfolio.

All of this might explain the oddities in pricing that followed the highly successful placement by Santana Minerals, which now has enough cash to complete all of its work prior to its plan to begin mining. Its shares fell until the punters’ unwanted shares were sold, then rapidly rose, when the selling was not being forced by the punters’ lenders.

For at least 18 months Santana will not be forced to report quarterly on a supply of cash that might have slowed its progress.

My guess is that if there were to be any more capital raising it would be done in conjunction only with those who would be lending Santana some of the large sum, perhaps $200 million, that it plans to borrow for plant, equipment, new staff, and mine formation, once it gains (if it gains) a consent. 

Pockets full, Santana is now rid of the hurdle of raising funds to continue its drilling programme. That represents a huge breakthrough of the company.

It has filed its resource consent application after completing the intense environmental work that would be required by the “slow” track created by six different Acts of Parliament.

If the project were “fast-tracked”, Santana could not be accused of taking shortcuts. Its environmental work has involved at least 12 independent environmental people.

While Santana may be finished with raising capital, placements and rights issues are likely to be a feature of the next two years, across many sectors, I figure.

If we are to remain in a glum investment mood, and if profits are stalling, in part because of a long-term increase in the cost of debt, then issues of equity will make sense. Equity can be cheaper than debt that is offered with prescriptive covenants.

Very likely the banks will provide debt to those sectors that are fully capitalised and have stable markets. They might not be as friendly when progress is in doubt.

Private equity might provide a tier of debt or capital that signals an elevated acceptance of risk. I am very wary of lending organisations which themselves have no or little capital. If non-bank lenders are looking for funds to lend, their capital funds should be a large buffer for those who provide the money.

Some sectors will find it very hard to raise equity or debt and to survive might depend on an agreement by minority shareholders to allow majority shareholders or newcomers to “steal” ownership of the company, or buy its prime assets.

Synlait Milk might be tickling these thoughts.

In some cases, like the retirement villages, any part or full takeover is likely to come from abroad, where there seems to be more patience and better analysis of what happens in the next economic cycle.

As the late Brian Gaynor so often postulated, quick short-term takeover solutions often prove over time to be very poor bargains!

We are in a bleak era, watching confidence in markets be shaken by dreary economic results that stemmed from an epidemic and quite dreadful financial leadership from people who craved popularity rather than respect.

So placements of equity may well be necessary, either to realise potential, or to stave off the panic reactions of bankers, fund managers, and creditors, who will be watching the growing number of company failures, the building sector heavily represented in this number.

Stress levels are rising. Liquidations are rising. Access to capital is much preferable to accepting strangling covenants imposed by lenders.

Those who can currently forecast long-term survivors have the best chance of being rewarded for their patience. They will need to be alert to real inflation, indefinitely. An aging world, with a falling number of younger people, suggests wage inflation is here to stay. Robots cannot do all of people’s work.

_ _ _ _ _ _ _ _ _ _

NEW Zealand lost a respected servant when a previous auditor-general, Brian Tyler, died at his Parkwood Retirement Village in Waikanae last week.

Tyler was widely respected for his analysis and common sense. Few auditors-general are financial market analysts. That is not their role. Brian was an exception.

Nor were all auditors-general paragons of purity. At least one left that office in disgrace in the 1990s, guilty of theft.

Brian Tyler was astute and insightful. He was a thoughtful, interesting, analytical man who was among the first men I met ever to challenge Ryman Healthcare’s business model, during the era when Ryman was the market darling.

He and an Auckland accountant/financial adviser, Michael Connor, saw the danger of building long-term assets using short-term funding, and disliked the Ryman habit of using, in effect, debt to pay dividends, effectively paying dividends based on reversible asset revaluations rather than cash.

Tyler noted the negative cash flows which most of the market accepted, because of the inevitable income from deferred management accruals, payable when residents die.

Mis-matched excessive debt, negative cash flows, and extreme expansion ambitions worried Tyler who correctly forecast a slump in Ryman’s share price.

Tyler lived into his 90s and was well respected by a wide group of people, including me, a public servant from the “old school”.

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PLEASE let your imagination wander.

Imagine that last year you successfully applied for a management role in the public sector.

You arrive at your desk in Wellington, excited by the opportunity to justify your extreme salary by making contributions using your experience to bring about better financial results.

Now imagine that for several months you are left to twiddle your thumbs, given no real tasks, not required to commute daily from, say, Levin to Wellington, indeed even encouraged to stay at home most days. Your manager ignores you, but you remain paid, just not employed. 

Eventually you crack. You go to your manager in the huge government department and confess that you have nothing useful to do.

Your manager is horrified. She sees potential for you to develop mental health problems from the stress of having nothing to do.

She arranges for you to attend a meeting, at which several other men and women are seated. You expect to be told what tasks you will be given, to earn your extreme salary.

What then happens seems so absurd that I am persuaded not to provide details of what the real, idle fellow alleges. It is sufficient to describe the sessions as farcical, ideological mumbo-jumbo.

Repeated meetings over ensuing weeks follow the same pattern.

If the “intervention” were unique, one might hope that the errant chief executive simply resigns for overseeing such nonsense, clearly having little respect for taxpayer money or his staff.

Perhaps the media needs to check out this alleged intervention.

What on earth was put in the public sector water when greenhorn politicians appointed a new group of public sector leaders who would preside over this sort of bunkum?

Is this a unique example of absurdity, or a symptom of a modern version of ideology that widens the brainless distribution of tax-payers money?

Or is it just the manager who is deluded?  The matter should be investigated.

The focus on waste in the public service would seem utterly justified, if his account is the full story.

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My last seminar is in Christchurch this Monday 27 May, 1.30pm, Burnside Bowling Club. Currently there are around 30 unclaimed chairs!

Thank you to the people who attended seminars at Cromwell, North Shore, and Kapiti.

The final seminar will discuss our somewhat bleak economic prospects and include a more encouraging discussion on the history of Central Otago mining, and the aspirations of Sanatana Minerals, potentially an NZX Top 20 company, if (when?) it dual lists.

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Infratil Limited – 7.5-Year Senior Bond

Infratil has announced it plans to issue a new 7.5-year senior bond. Full details of the offer are expected to be released on 27 May 2024.

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.

While the initial interest rate has not been announced yet, we expect it to be above 6.50% per annum based on current market conditions.

Infratil will likely cover the transaction costs for this offer, so clients will not be charged any brokerage fees. This will be confirmed next week.

The offer will comprise two separate parts:

- New Firm Offer: Expected to open on 27 May 2024, reserved for new investors. The Firm Offer is expected to close at 11am on 30 May 2024, with payment due the following week.

- Exchange Offer: Expected to open 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 of their maturing bonds into these new bonds.

If you are interested in being added to the list for these bonds, please contact us promptly with the desired amount and the CSN you wish to use, and we will pencil you in on our list.

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.

Next week, we will send a follow-up email to anyone who has been added to our list once the interest rate and terms have been confirmed.


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

27 May (am) – Christchurch - Fraser Hunter

28 May – Christchurch – Chris Lee

29 May (am) – Christchurch – Chris Lee

29 May – Wellington – Edward Lee

30 May – Levin – David Colman 

5 June – Nelson (FULL) – Chris Lee

6 June – Blenheim – Chris Lee

11 June – Tauranga – Chris Lee

19 June – Lower Hutt – David Colman

25 June – Napier – Chris Lee

Please contact us to arrange a meeting office@chrislee.co.nz   

Chris Lee

Chris Lee & Partners Limited

Taking Stock 16 May 2024

WHEN experienced shareholders assess the skill and value-add of public company directors, one area that should be in focus is the history of aspiring directors in managing capital and debt.

Fairly obviously, the structure of debt has a hefty effect on profitability and survivability when interest rates are rising, and when company performance is volatile. Most NZ companies have directors with zero experience in this important area.

After exposing the stupidity of South Canterbury Finance’s errors in arranging its debt nearly 20 years ago, I did not expect any competent board of directors to make the same errors. Surely, the message was now universally understood.

Let’s just say my expectation has not been met.

Many make the same error. Directors are chosen with little heed to such basic skills, it seems.

To recap, two decades ago SCF directors borrowed around $120 million with a US private placement market (USPP), mostly comprising second-tier fund managers and insurers. Perhaps they were third-tier, not second.

The American lenders coughed up funding with the potential to be of such a long term that it might have helped to match SCF’s illiquid high-risk, long-term, property development lending book.

SCF was right to seek seven-year money generally not available from our banks, though such funding could have been available from the NZ bond market had SCF been blessed with even moderately competent external advisors and directors.

The USPP lenders looked after themselves, as it transpired. They enjoyed a feast at SCF’s cost.

They imposed covenants on SCF which demanded a minimum Standard and Poor’s credit rating (of BBB minus) to retain the loan.

Somehow the SCF directors were collectively so poorly advised and so unworldly that they did not see the danger of this covenant.

The danger, of course, was that in a deteriorating world (the eve of the Global Financial Crisis), credit ratings would be vulnerable as credit raters naturally developed twitchy fingers. SCF did lose its investment grade rating.

The real hazard to SCF was that those American lenders had the right not just to call up the loan immediately, capsizing SCF’s cash flow plans, but in particular the lenders spelt out that the borrower would have to pay back the principal AND all of the interest that would have been paid out over the planned seven-year term of the loan. The call-up right would follow a downgrade of SCF’s credit rating.

If you borrow $120 million at, say, 8%, you are up for $9.6m per year in interest. If you breach a covenant, it would be very much in the interest of the American lenders to demand repayment.

Negotiation of the waiving of the lender’s right was as improbable as a successful request to Putin to stop attacking Ukraine. The lenders had no motive to help SCF survive.

If you took out the seven-year loan in 2005 and were forced to repay in 2008, you would have to pay four more years of interest at 8% on the full amount, even though you had repaid the loan. Four years on $120 million at 8% is $9.6 million times 4 years, or $38.4 million, a huge bonus for the lenders, a disaster for SCF.

Ouch. What sort of amateur directors would accept such a covenant when taking out a loan? How bright were the directors? Or perhaps I should ask how desperate were they?

SCF’s demise was caused by several factors, principally the decaying functions of the late Allan Hubbard, his choice of C-grade lenders, his C-grade chief executive and chief operating manager, and Hubbard’s inexplicable desire to accept advice from a team of outsiders who, if not a C-team, were most definitely far from matching value with their cost.

The late Eoin Edgar was an example of a provider of very poor, often selfish, advice.

Surely this type of loan, a USPP, would never be visible again in NZ, the lesson understood after the damage it caused SCF?


Ryman Healthcare and Auckland International Airport are two recent examples of organisations which have had to seek equity at distressed prices to repay such loans prematurely.

Ryman raised nearly $900 million two years ago with a heavily discounted rights issue, almost all of the $900 million being used to repay the principal with penalty rates to a US group of lenders.

Auckland Airport raised capital of more than a billion, also at a heavily discounted rate, for the same reason.

In Ryman’s case, the company should soon be raising another $500 million at least, to ensure the duration of its remaining debt matches the assets it funds.

Ryman’s problems result from an expansionary building programme from which the cash to be released by pre-sales has taken far too long to materialise. The development of its new sites is exceeding all expectations of cost and is taking too long to achieve consent and then to be built, in an era that has the stench of panic.

The board's focus on using too much, expensive, short-term debt has caused grief after Ryman’s two decades of success in managing its building programmes with debt, often spending today, the money it expected to receive tomorrow.

Its directors have changed, as has its executive, and the company has slipped from being almost universally admired, to being somewhat scorned for its board's poorly managed debt structure and its refusal to raise capital. Auckland Airport's debt management has also reflected poorly on its board and management.

The quality of the airport’s unique land assets (embracing essential transport hubs and neighbouring importers, exporters, freight companies and manufacturers) has meant that the public company has not been hounded by its current lenders, yet.

The lenders have security, directly or indirectly, over land assets and airport cash flow that allows the lenders to forgive board errors.

But it is surely alarming to record that these two companies that would have ranked in our top ten on most admiration scoreboards have been exposed for their poor governance, and overuse of short-term debt.

One wonders whether capital and debt management is a discipline that every single director (and maybe every city and town mayor) should display before seeking office. Do those who appoint these people ever ask the question?

The real power holders in NZ - people with the personal wealth, patience, skills, and experience to bring about effective change - seem to have quite tiny lists of people they would regard as top grade governors, to add to the governance team.

Recently the Wellington newspaper’s most competent journalist prepared his personal list of who he figured would be New Zealand’s most powerful people.

His list correctly identified a small handful of undoubtedly prominent power holders, but he included in a list of 50 at least 35 people by my count whose relevance will be short-lived, not entrenched by their personal ability to bring capital and debt together to underwrite essential strategy.

It remains a grim fact that NZ has a modest pool of genuinely outstanding leaders and governors.

Perhaps a commerce student could gain insight into how things should be done, and are demonstrably effective, by analysing Mainfreight’s extraordinary success in becoming one of the country’s few genuinely international companies.

They would discover that Mainfreight seeks expertise and experience at board and executive level with no heed to the often ideological stuff promoted by universities and lobby groups.

They would also discover that Mainfreight displays real commitment to meaningful social matters, but gets its balance sheet right before moving to other issues.

It then takes on real issues like non-wastage of crucial resources.

For example, the company collects and stores rainwater from the roofs of its many depots and uses it for many purposes, not including drinking, but definitely including washing.

Furthermore, it measures its collection and regards water recycling as central to displaying common sense, and a commitment to society.

Its directors and executives are often unchanged for decades. Clearly, they are chosen for their relevance, networks, and critical skills.

The likes of Ryman, Auckland Airport, and newspaper journalists might do well to seek input from those who have driven the likes of Mainfreight to its elevated status.

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THE world lost a clever man when the American fund manager Jim Simons died last week, aged 86.

Simons, a mathematical genius, was the man who proved that mathematics - quantitative analysis - was the discipline needed to forecast company success, sustainability, and thus true value.

He created a funds management company that focused on maths and proved to the world that science, not art, and not ideological wizardry, was the driver of good funds management results.

He became universally acclaimed as the “quant king” by using arithmetic to analyse data.

His fund, Medallion, produced returns four times those of the S&P500 index in the USA, and over a 25-year period generated an annual return of more than 30% per annum, an astonishing testament to his analysis, and his methodology.

This return came after his mind-boggling fees, which eventually reached 5% of assets managed, and nearly 50% of profits earned by that Medallion fund. The return was AFTER those fees!

Ultimately, he capped Medallion at $10 billion, and created new conventional, less successful, funds for the public, succumbing to fund management principles like diversification, and charging moderate fees.

Those who today preach the untruth that intelligent, active fund management is outperformed by low-cost robotic index funds clearly never penetrated Simon's world.

The nearest performance that one can hold up as a New Zealand paragon of consistent outperformance might be Infratil, which over 30 years has produced all-up returns (capital gains and dividends) of nearly 20% per annum for its investors.

It might be worth mentioning that Infratil, like Simons, has never focused on sectoral diversity or academic or social ideology.

What Infratil and Simons teach us is that proper research, intelligently applied, is the holy grail.

Perhaps the implication is that the aping of an index beats only shoddy research or modest intellect.

Simons was indeed a genius.

_ _ _ _ _ _ _ _ _ _

POOR use, and overuse, of debt is not the only known weakness in New Zealand’s business world.

Almost as serious is our focus on short-termism, a “virus” that reached NZ in the Brierley era, when asset-rich companies were regarded as lazy, assets often undervalued.

Today the fund managers are all absurdly over rewarded for short-term results, leading to their applying great pressure on companies to focus on quarterly profits, rather than on long-term, sustainable value. (Companies should rarely be guided by fund manager opinions.)

It followed from these pressures that chief executives would be assessed by TMR - total market returns - when bonuses were being calculated. Short-termism has thus become engrained.

The TMR assessment calculates shareholder returns by adding dividends to share price movements.

As you would expect, this leads inevitably to a CEO focus on the daily share price movements, a quite ridiculous criterion, given share price is so often moved by braindead index-hugging fund managers, and is rarely an indication of true value.

Readers may recall that the index hugging at KiwiSaver and fund managers in very recent years drove Contact Energy, Meridian, Synlait Milk, Ryman, and others to share prices that had nothing to do with the work of the chief executive and his governors.

So total market returns maybe, and often are, unconnected to good decision making.

Share prices should rarely be seen as the judge and jury of a company’s progress.

What NZ needs from its drivers of national wealth is a focus on strategy, survivability, and comparative advantage, overseen by governors with the wealth, experience, patience, and mana to attract capital and long-term debt, matching assets.

NZ has a tiny number of such truly powerful people. Few of them engage with the media.

They have no desire to be forced, as our Prime Minister was recently forced, to castigate the media for asking inane questions like “what is your definition of food that someone else calls woke”.

We need the best people to drag NZ out from its current funk.

They will have long-term horizons, sufficient wealth to cash flow slow burning projects, genuine experience, the wisdom to surround themselves with excellent people, and an ability to ignore the “noise” of social and mainstream media, from where wisdom rarely appears.

We need real leadership! Just ask the rate-payers in Wellington!

_ _ _ _ _ _ _ _ _ _


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

27 May (am) – Christchurch - Fraser Hunter

28 May – Christchurch – Chris Lee

29 May (am) – Christchurch – Chris Lee

29 May – Wellington – Edward Lee

30 May – Levin – David Colman

5 June – Nelson – Chris (FULL)

6 June – Blenheim – Chris

11 June – Tauranga – Chris

19 June – Lower Hutt – David Colman

25 June – Napier – Chris

Please contact us to arrange a meeting office@chrislee.co.nz   


Chris Lee is holding a small number of investment seminars in May.

He will be discussing the economy – how to read the signals and avoid disasters – along with a presentation on a proposed gold mine in Bendigo, Central Otago, including the history of gold mining in the area and its plans for the future.

Location: Paraparaumu

Date: Monday May 20

Time: 11am

Venue: Southwards Car Museum

Location: Christchurch

Date: Monday May 27

Time: 1.30pm

Venue: Burnside Bowling Club

Reservations are required and can be made by emailing seminar@chrislee.co.nz or phoning 042961023.

Chris Lee & Partners Limited

Taking Stock 9 May 2024

Fraser Hunter writes:

IN recent years, New Zealand's insurance market has faced significant challenges due to a flurry of large natural disasters, shifting consumer needs and the need for regulation to get up to speed. More recently, the insurance industry has become a focal point for individuals, businesses, as well as local and central government, due to its critical role in financial stability but also its rapidly rising costs. The Reserve Bank has taken note of the new pressures and asked the trading banks to assess the insurance conditions on the properties they lend to.

Insurance is essential for protecting against unexpected losses, helping to keep the economy stable and secure. This is particularly important for a country such as ours, which has been especially hard hit by events like major earthquakes, cyclones and severe floods. These have highlighted the importance of insurance for funding recovery and managing risk.

The key issue now is the rising cost of insurance. As prices continue to go up - caused by more frequent natural disasters and higher global insurance costs – all parts of society get squeezed. Households are seeing higher bills, businesses are absorbing or passing on increased costs, and local governments are facing budget constraints. A growing number of asset owners are choosing to under-insure, or in some cases not insure, leaving them more vulnerable to future events.

There is an increasing need to establish long-term solutions to prepare for future events, in addition to rising costs and the necessity of constructing resilient infrastructure. Experts, government officials, and international groups like the OECD are searching for solutions to better prepare for future uncertainties, including improved pricing models and changes to the insurance system to make the industry more competitive and transparent.

To prepare better for the future and cope with rising costs and the need for more resilient infrastructure, experts, government officials, and insurers are working together to find solutions. These solutions include making the insurance industry more competitive and transparent and improving pricing models to deal with future uncertainties. 

Along with savings, insurance helps prepare for unexpected events and ensures sufficient coverage for most eventualities. Recent trends in the insurance market highlight the need to anticipate future increases in premiums and potentially explore alternative solutions. 

_ _ _ _ _ _ _ _

Compared to other nations, New Zealand has a high take-up of insurance, most notably property, which represents a high proportion of our wealth and savings. Our long history of natural disasters has driven innovative and unique solutions, such as the establishment of the EQC which ensured global insurers remained in the NZ market and until now has kept coverage wide and prices affordable.

The frequency and impact of natural disasters have been steadily increasing, with 2023 a record high in terms of natural disasters (142) and marking the fourth year in a row that insured losses topped $100bn. 

It was also a challenging year for New Zealand, primarily due to the impact of two major weather events early in the year, which caused losses exceeding $3.5 billion. 

As a result, insurance premiums have risen, driven by the increasing frequency and severity of these disasters and the escalating costs of claims, further worsened by inflation and supply chain issues. 

_ _ _ _ _ _ _ _

Household insurance costs rose by 25.8% in the year ending 31st March 2024. This increase is part of a trend that can be traced back to the Christchurch earthquakes. Over the past 14 years, home insurance costs have risen at an average annual rate of 11.3%. This cumulative increase has led to a 4.5-fold rise in costs, nearly double the pace at which house prices have grown over the same period. 

Regions such as Wellington have been particularly impacted and continue to be the most expensive areas for insurance. The Coromandel and the East Coast of the North Island have also experienced significant cost increases following recent cyclones and flooding events. 

Although the increase varies from region to region, reflecting different risk profiles, the overall trend across New Zealand is a steep upward trajectory in price, driven by the risk of future events and the increasing risks they pose to the country.

_ _ _ _ _ _ _ 

The rising cost of insurance has increasingly become a topic of concern over the past year, noted both as a political issue and a risk to financial stability. In 2024 already it has appeared in briefings by the Reserve Bank of New Zealand (RBNZ) and the Government as special topics of interest. 

While interest rates have been widely blamed for the steep increase in the operating costs of property and physical assets, they are expected to eventually ease off. However, insurance costs are projected to continue growing, with an anticipated increase of about 7% annually for the remainder of the decade.

The rising costs of insurance are impacting the economy in various ways, including higher rates charges, as well as incremental increases in the prices of everyday goods and services, as businesses pass on rising costs to consumers.

_ _ _ _ _ _ _ 

The motivation for this topic hit me last month as I went through the process of renewing my own insurance. The price shock along with the minimal information provided by my insurer for renewal - pretty much an invoice and a scheduled direct debit date - prompted me to explore other options available.

Paying annual premiums and shopping around are the most commonly advised strategies to save on insurance costs. Yet, Consumer NZ estimates that less than 20% of households review insurance providers each year, and it’s clear why. The process revealed the common frustrations in the home insurance market, such as a lack of competition and difficulty in comparing quotes.

The savings to be had are vast, with the gap between the lowest and highest quotes in Wellington often exceeding $1500 per year, or >75% higher, from top to bottom. 

The process of renewal is harder for at-risk properties, which have less ability to shop around, with underwriters restricting cover for properties in high-risk earthquake and flood zones, especially in Wellington and Marlborough, due to the growing risk of climate change-related natural hazards. This is expected to get worse, with insurers signalling future withdrawals from high-risk areas.     

In response to soaring insurance costs, an increasing number of homeowners are choosing to under-insure their properties or raise their excess to make insurance more affordable. According to a Consumer NZ survey, 8% of policy holders are choosing to allow their policies to lapse due to high costs.

_ _ _ _ _ _ _ _ _ _

The New Zealand insurance market is dominated by two major Australian-owned companies, IAG and Suncorp. They operate under a variety of brands. This illusion of brand diversity masks the reality of a market largely cornered by these two companies.

This concentration has undoubtedly stifled competition and innovation within the sector. Consumers often struggle to compare insurance products effectively due to the lack of detailed information and the industry giants' reluctance to share data with third-party comparison platforms, something they are compelled to do in other markets. 

Despite frequent natural disasters and a surge in claims, New Zealand’s insurance industry remains highly profitable. According to KPMG, the gross written premiums have been rising in line with asset values and increasing risk premiums. While short-term profitability has taken a hit due to the escalating costs of claims, as reinsurance rates stabilise and claim levels return to normal, the industry’s profitability is expected to recover.


The rising premiums have a similar impact on businesses, especially in sectors like construction, retail, and manufacturing, which are already vulnerable to economic shifts and fluctuating interest rates. 

The increased cost of insurance is adding to existing pressures such as high operating costs and reduced demand. As a result, many businesses are postponing capital investments, selling off assets, or scaling back their expansion and recruitment plans to preserve financial stability.

Local councils are also experiencing painful financial strain from skyrocketing insurance costs. The drivers for this are unsurprisingly similar to homeowners, increasing asset base, higher costs for repairs and replacements, and more frequent and severe natural events. Major cities like Auckland, Wellington, and Christchurch are facing tough decisions, presenting rate payers with proposals for double-digit rate increases to offset rising insurance costs.

The Christchurch City Council has seen its insurance premiums jump by 72.5% since the 2021/2022 financial year. Wellington City Council is confronting a particularly daunting challenge, with a growing $2.5 billion gap between their insurance coverage and asset values over the past three years, potentially exposing them to losses of $2.7 billion in the event of a major disaster.

To manage these challenges councils are adopting strategies such as underinsuring or capping coverage for certain events, selling assets, and establishing funds to self-insure against future incidents. However, these approaches increase their own and more broadly the country’s vulnerability to large, unexpected natural disasters and do not fully address the risks.


Last week, the government unveiled its proposed Insurance Amendment Bill, which has been a long-time coming and tweaked by multiple prior governments. The bill aims to modernise the industry and bring it up to speed with international standards, with an increased focus on consumer protection.  

It shifts the disclosure responsibility to insurers, clarifies unfair contract terms under the Fair Trading Act, and mandates clearer insurance policies. Additionally, it ensures insurers respond proportionately to consumer misrepresentations. The Financial Markets Authority receives enhanced powers to enforce these changes, aiming for a fairer, more transparent insurance market.

There is also a growing call to increase regulatory scrutiny of the sector, similar to what has been done in other industries such as fuel retailing and supermarkets. These developments could lead to improvements in how the insurance market operates, particularly increasing transparency and competition.

At the same time, the Reserve Bank of New Zealand (RBNZ) stressed the need for the insurance sector to adopt risk-based pricing and enhance financial risk management. The semi-annual Financial Stability Report emphasized the critical importance of ensuring insurance availability, especially in regions vulnerable to natural disasters like earthquakes and floods.

While risk-based pricing is deemed necessary, it poses potential challenges for insurance access in high-risk areas, which could impact financial stability. To mitigate these concerns, RBNZ has recommended a blend of regulatory actions and market innovations to keep insurance both accessible and affordable.


The recent challenges in the insurance industry are driving change due to escalating premiums, regulatory changes, and the need to prepare for more larger and more frequent natural disasters. 

For the average household, these shifts translate into a persistent rise in insurance costs, making coverage increasingly less affordable. Although tactics like comparing insurance options and increasing deductibles may provide temporary help, they do not address the core issue of rising underlying costs. 

As a result, more individuals are having to lower their insurance coverage, underinsure, or even attempt to self-insure, leaving them exposed to financial shocks that could seriously threaten their financial stability.

For many retirees, these rising costs are often unbudgeted, driving a growing need for non-traditional products such as reverse mortgages. These can provide immediate reprieve to the asset-rich, but cash-stretched. 

Investors, indeed all households, should watch this developing story. Insurance premiums, like rates and rent, eat into the budgets of households, especially those of the retired. 

Should insurance companies begin to report generous nett margins, investors could be tempted to buy shares in the likes of IAG, Suncorp, or even the locally-listed Tower. These have historically struggled to keep pace with their respective markets. 

Alternatively, continue to pressure the Crown and Councils to provide alternative solutions to keep premiums down, such as a broadening of the EQC’s remit or reintroducing a State Insurance programme. 

_ _ _ _ _ _ _ _ _ _

Thank you to clients who participated in this week’s new issue of Auckland Airport bonds.

Auckland Airport comfortably issued $250 million of the bonds to institutional and retail investors with high demand for the high quality issuer.

The interest rate for the bonds maturing on 15 November 2030 was set at 5.45%p.a.

The bonds will be listed on 15 May under the code: AIA280


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

15 May - Auckland (Ellerslie) – Edward Lee

16 May – Auckland (Albany) – Edward Lee

17 May – Auckland (CBD) – Edward Lee

27 May (am) – Christchurch - Fraser Hunter

28 May – Christchurch – Chris Lee

29 May (am) – Christchurch – Chris Lee

30 May – Levin – David Colman

5 June – Nelson – Chris

6 June – Blenheim – Chris

11 June – Tauranga – Chris

19 June – Lower Hutt – David Colman

25 June – Napier – Chris

Please contact us to arrange a meeting office@chrislee.co.nz 


Chris Lee will be holding a small number of investment seminars in May.

He will be discussing the economy – how to read the signals and avoid disasters – along with a presentation on a proposed gold mine in Bendigo, Central Otago, including the history of gold mining in the area and its plans for the future.

Location: Auckland

Date: Friday May 10

Time: 2.00pm

Venue: Milford Cruising Club

Location: Paraparaumu

Date: Monday May 20

Time: 11am

Venue: Southwards Car Museum

Location: Christchurch

Date: Monday May 27

Time: 1.30pm

Venue: Burnside Bowling Club

Reservations are required and can be made by emailing seminar@chrislee.co.nz or phoning 042961023.

Chris Lee & Partners Limited

Taking Stock 2 May 2024

ANY regular readers of our client newsletters will know that I hold high hopes for one new project to convert to a star performer on the NZX in the next year or so.

I refer to Santana Minerals, actually an ASX-listed gold explorer, but very likely to be dual-listed if the plan becomes a reality.

Santana is an Australian company that plans to make all of its revenue in New Zealand by mining for probably many decades the gold that has been indicated in the Bendigo hills near Cromwell.

I cannot think of any other ASX-listed company wholly dependent on NZ.

For seven years I have watched this exploration project advance, admiring the two highly experienced geologists, Kim Bunting and Warren Batt, build the project, quietly and cautiously.

They have built an excellent team of geologists to work with them and, having satisfied themselves that the discovery was commercial, have helped transition the project from its origin, Matakanui Gold, comprising fewer than 20 shareholders, into an Australian company with the capacity to raise overnight tens of millions, as it just has proved.

Santana Minerals understood the data, supplied the tens of millions needed to drill hundreds of holes into the hills and valleys, and was richly rewarded when the drillers struck an ore body which contained high grades of gold, thus converting a good project into one that might have a large impact on New Zealand in coming years.

Last week Santana Minerals took another crucial step, raising A$30 million from “wholesale” investors and fund managers.

Santana placed shares at A$1.15 each and found demand so far exceeded the Santana target that scaling of around 50% occurred. Its previous capital raising was at A$0.62cents.

The company now has the cash to progress its transformation to a mine, fully funded to complete its consent application, its continuation of drilling (to convert “inferred” gold into the more certain status of “indicated” gold) to spend on better roading, and to prepare for the conversion to a long-life mining company.

This seems eons beyond the time when the geologists invited me to invest, and to find wholesale investors willing to take the substantial risk of funding an exploration project.

Any such project has risks beginning with: - 

a) The possibility that no meaningful gold resource will be discovered.

b) The project might end because of lack of future funding.

c) The project might fail to attract the expert staff needed if gold is found.

d) The gold price might fall, ruining the economics.

e) The consenting process might fail because of ideology.

f) Unknown events – earthquakes, floods – might make the mining of a discovered resource impossible.

These have gradually been addressed, to the extent that they can be mitigated.

This has been to the immense credit of Batt and Bunting, and more lately to the Chief Executive Damian Spring (an engineer with extensive experience in managing mining developments).

My view is that if the project achieves its potential, Batt and Bunting would be far more appropriate recipients of a knighthood than most of our business knights.

Consent has yet to be considered, the price of gold has risen sharply but still could fall, and the unknown events occur randomly.

Yet Santana has high levels of certainty that it has located a vast resource of high-grade gold, on private land, well away from housing. It now has money to fund itself for at least two years, and it has to its credit very fully addressed the old standards required of miners, ensuring that if it is not “fast-tracked” by the Crown, it would have a thorough application for a “slow” track.

This month it has released a pre-feasibility study, which it says by definition could overstate OR understate its financial forecasts by up to 25%. The study, including extensive environmental issues, indicates an expectation that for at least 10 years it will mine.

Mathematically, the odds of it being a mine for only 10 years are like the odds of finding in its rock dinosaurs playing netball. The 10-year time frame ignores other site discoveries and assumes the untested boundaries bring an immediate end to the presence of gold.

The cost of extracting gold would be low because the rock processed releases gold without the need to burn off the carbon, which usually traps gold, but at Bendigo is absent.

The energy cost of burning off carbon is high. The saving is immense. Without that cost Santana’s margin is unusually wide.

The pre-feasibility study highlights the value of the project to investors and the Crown. The Crown stands to benefit by around $1 billion over the first 10 years of the mine’s life. 

The project will employ around 250 people, most of whom are likely to live within a 50-kilometre radius of Bendigo. The company is likely to have buses for its workers. The wage bill will exceed $25 million per annum.

Cromwell’s town of around 6,000 is likely to supply the mine with provisions. Suppliers will like the new customer.

The project will largely be electrified. The Clyde dam’s renewable energy will have a new demand.

Investors, according to Santana’s plan, would enjoy over 10 years a surplus of around $2 billion producing an internal rate of return of around 75% per annum, if the gold price remains at current levels.

One imagines that Cromwell’s supermarkets will have more customers, that the motels and the Harvest Hotel will be busier and that the schools will have to cater for more kids.

Taking Stock has regularly presented the facts and discussed the potential for some years, anticipating that the milestones will be methodically achieved.

For reasons of their own, not understood by me, other brokers and most of the media have made no attempt to understand the project.

To anyone prepared to analyse its drilling results, listen to the regular briefing, and watch the ASX announcements, Santana Minerals has provided real hope that there might be bright lights on at least one line of investor portfolios in the fairly glum global, and very bleak local, economy.

If Santana is consented, builds its open pit and extracts the high grade of indicated gold at the modest costs predicted, it would produce, at current gold prices, around $200 million of nett profit after tax, every year.

In New Zealand, that would make it comfortably enter the NZX Top 20 stocks if it were listed here.

A Top 20 stock entering various indexes must be bought by KiwiSaver managers and will benefit from the research reports of the major brokers, who currently have made no effort to understand the project.

In Australia, a mining company producing $200m of nett profit after tax would rise in market capitalisation to a level that qualified for the ASX Top 300, meaning index funds there would robotically buy Santana shares.

The share register currently reflects low levels of trades, primarily, I suppose, because most NZ investors in Santana have watched the milestones be reached and have good reason to hope that the forecast profits occur, leading to dividends that would reflect the high grade of gold, the low cost of production, and the current (elevated) gold price.

Imagine that! NZ, Cromwell, might have a new star, shining brightly, within two years.

The final steps to get there will be: -

Consent (not guaranteed).

Debt funding (for the plant and equipment).

Successful gold extraction at forecast yields.

A consistent gold price.

Footnote: The history of gold mining around Cromwell is fascinating. I will discuss this at a seminar I will hold in Cromwell on May 6. The public will be welcome but must pre-register as seating is limited at the Harvest Hotel (seminar@chrislee.co.nz 042961023). As at the time of writing there were 40 unclaimed chairs.

_ _ _ _ _ _ _ _ _ _

THE announced result of BUPA, the aged care provider, was yet further evidence that major operators like Ryman, BUPA, Summerset, Oceania, and Arvida are being short-changed by the Crown.

The government refers people who need care to the providers and sets the price it will pay the operator for its care service.

The operator must employ nurses and meet high standards of care to retain the licence, and must be open, where possible, to those the Crown refers to the private operators.

The cost of meeting these standards is much greater than the Crown pays, the most obvious high cost being the wage bill, especially for our wonderful nurses.

So the providers either subsidise those needing care by making profits from property sales, or subsidise them by charging, more than cost, those who are able to pay for additional comforts, like a nice outlook from what the sector calls a “premium” room.

Business models based on cross-subsidies do not work for long.  Smart operators enter the sector and provide only premium rooms.

Weak operators go broke. The sector under-provides. The Crown then has an unfixable problem, at least in the short term. Building more beds requires a lead-in time of several years.

Our Health Ministry has just completed a study of this and concluded that the sector is heading for crisis, with more people needing care (by 12,000) than beds are available.

The Crown’s responsibility to provide care will be tested. 

Many may recall what I regarded as the air-headed comments of the Retirement Commission when two years ago it released statements that I viewed as an attempt to justify the commission’s survival. The commission was supported by a little-known provincial commentator with a good eye for self-promotion.

If I were in charge, the commission in its entirety would be at the top of my list to cut the numbers who feed off the public purse.  While there may be examples of care providers having different protocols and different ways of surviving, like deferring settlements until properties are sold, there never was a case for relitigating the contracts that residents had signed when they bought a licence to occupy a room.

Every aspiring resident was required to receive independent legal advice before buying care. Empty little fist-waving cannot alter the facts.

The aged care providers and the retirement village sector invest huge capital into property and take what clearly is the significant risk that its sales and care services will cost less money to deliver than the market will pay.

If some want to add more pressure on the providers, they would find that the provider of last resort – public hospitals – would have to absorb the surplus numbers needing care, as the private sector would cancel its plans to build more beds. That is happening now.

BUPA, a reputable provider, has property that has cost hundreds of millions to provide its service. One in 11 care beds in New Zealand is provided by BUPA. Its 2023 profit of $12m is risibly inadequate, a bubblegum profit for an organisation with enormous capital invested, taking very real risks.

Those who provide the luxury facilities retain the right to stop growing, stop building more facilities and let the Crown and the Retirement Commission work out a replacement service. Frankly, that scenario is hideous. Silverstream Hospital, of the 1960s, would presumably be rebuilt, its equivalent in every town.

What would then follow would be a two-tier sector, those with little or no money being in a Crown “poor house”, while those with money would pay the private sector whatever it costs to live with dignity and, as “Frederick” would say, in “propitious” circumstances.

Is that a desirable outcome?

_ _ _ _ _ _ _ _ _ _ __


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

3 May (am) – Timaru – Chris Lee

6 May – Cromwell – Chris Lee

7 May – Cromwell – Chris Lee

15 May - Auckland (Ellerslie) – Edward Lee

16 May – Auckland (Albany) – Edward Lee

17 May – Auckland (CBD) – Edward Lee

27 May (am) – Christchurch - Fraser Hunter

28 May – Christchurch – Chris Lee

29 May (am) – Christchurch – Chris Lee

30 May - Levin - David Colman

5 June – Nelson – Chris

6 June – Blenheim – Chris

11 June – Tauranga – Chris

19 June - Lower Hutt - David Colman

25 June – Napier – Chris

Please contact us to arrange a meeting office@chrislee.co.nz   


Chris Lee will be holding a small number of investment seminars in May.

He will be discussing the economy – how to read the signals and avoid disasters – along with a presentation on a proposed gold mine in Bendigo, Central Otago, including the history of gold mining in the area and its plans for the future.

Location: Cromwell

Date: Monday May 6

Time: 7.15pm

Venue: Harvest Hotel

Location: Auckland

Date: Friday May 10

Time: 2.00pm

Venue: Milford Cruising Club

Location: Paraparaumu

Date: Monday May 20

Time: 11am

Venue: Southwards Car Museum

Location: Christchurch

Date: Monday May 27

Time: 1.30pm

Venue: Burnside Bowling Club

Reservations are required and can be made by emailing seminar@chrislee.co.nz or phoning 042961023.

Chris Lee

Chris Lee & Partners Limited

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