Taking Stock 26 November 2020

THERE are two areas of bank lending that provide the Australian banks with leverage in their arguments with the Government and the Reserve Bank.

The issues are coming to a head and are of great importance to the nation.

There is no debate about mortgage lending to home buyers.  The banks will chase that lending at low margins.  Home mortgage lending requires very little bank capital and produces very little in bad debt.  It does not threaten our banking stability, providing house prices do not slump.

The areas of lending resistance are in property development and lending to our productive sector (dairy, meat and wool, horticulture, fishing, viticulture etc).

The Australian banks are crucial funders of these activities.  They know our country needs constancy in these areas and they know we know.

How do we increase our housing supply if our developers cannot reliably access funding?

The Government thinks it can help with property development lending, perhaps even establishing a source of funds for these activities.

Heaven help us if that idea becomes reality as commercial property and property development lending require street wisdom and experience not visible in the public sector.

Regrettably we have no Rural Bank.  It was destroyed years ago, and was finally absorbed by the National Bank, itself bought by ANZ. ANZ is now our largest bank and, judging by recent years, our poorest-governed bank and one that seems to have a protruding middle finger to brandish at New Zealand's public sector.

Rural lending has stalled in the past year, the specialist rural bank, Rabobank, unable or unwilling to pick up the accounts that banks like ASB have wanted to abandon.

Whether this signals the poor quality of ASB's rural portfolio or its general level of comfort is anyone's guess.

The Chinese seem keen to take up opportunities to lend to our rural sector.

In my view the rural sector is wise to inspect with suspicion the covenants in the loan documents of Chinese banks.

Those banks have historically made cynical use of amateurish politicians at governance level, from which I infer a degree of Chinese-based control that is less than ideal.

Who can forget the covenants in the loan to the Mataura Valley Dairy Co?  Those conditions enabled the Chinese bank to recall its $150 million loan within 24 hours if the Chinese 60% majority owner ever sold down its shareholding by just one share, a process that could potentially have delivered the dairy company into Chinese ownership.

Perhaps the Crown should re-establish a Rural Bank, run by private sector specialists, to offset this over-dependence on offshore-owned banks.

Property development lending is important but should not be done with the same goofiness as the small business loan product brought in as a Covid-relief package.

Property developers operate on very low capital, usually use other people's money to fund their developments, and destroy unsecured creditors and even secured lenders when they fail.

Happily we seem cemented into an era when every property produced in an urban area will find a buyer, even when the properties have been crammed into an area where only the smallest car could get in and out, and where neighbours would be very aware of the difficulties of others suffering from hiccups or other digestive interruptions.

Currently, the developers emerge with around 20% nett margins, often pre-paying themselves with creditors' money during the building process.

Wise bankers demand a high level of pre-sales, but the unsecured creditors always take the chance that the development finishes roughly within budget, on time, enabling titles to be granted and settlements to occur.

The tradies are paid along the way with bank funding but unsuccessful developments always leave tradesmen with an unhappy deficit.

Why developers can get away without secured personal guarantees to tradesmen is a mystery best explained, I suppose, by their superior lobbying skills, when laws were framed.

Even if banks play hardball with politicians and regulators, development funding is best left to banks and, perhaps, the rare investment bank that has access to the best banking skills.

The sure sign that we are nearing the end of the development cycle will be the emergence of the likes of St Laurence, Strategic, Bridgecorp or Hanover, whose appalling leaders and owners collectively stripped more than a billion from NZ investors after those companies lost any moral compass in the years between 2005 and 2007.

When the next iteration of cheats and liars arrives, any investor simply must demand a return that reflects risk.

Ideally the regulators would ensure the next wave of development financiers cannot access retail investors without a company structure heavy on capital and highly prescriptive on matters like transparency, executive bonuses, dividends, and related party lending.

But the regulators and legislators seem reluctant to be highly prescriptive.

I observe the first of a new round of development lenders will be led by the Wellington-based, Hong Kong born, Chow brothers, no longer described as brothel owners but now self-described as property moguls.

As an aside no one should ever be described as a commercial property owner if he/she has debt levels of any significance.  Ownership implies control.  Heavily indebted ''owners'' have control only at their lender's tolerance level.

Commercial properties fluctuate greatly in value at different parts of the cycle.

Their owners often think of the difference between a highly volatile and potentially short-lived valuation and the debt as being their ''capital'' or ''nett worth''.

As we all know, the banks determine when the debt ratios are too high and will force a sale at a price they determine when the cycle changes.

It is a somewhat sick joke that many owners acclaim the (temporary) nett differences between ''valuation'' and debt as their nett worth, or even more dishonestly, regard that difference as ''cash'' available to make further purchases.   Access to a conditional bank lending facility would be described as ''cash'' by only the most pretentious charlatans.

The Chows will now know that the banks want to see debt on commercial properties fall well below 60%, as the property cycle becomes less predictable.

Banks like the ANZ will have made this clear.

So the Chows have engaged people like John Key and the former BNZ economist Tony Alexander to appear at an opening function of a new property development fund, available to wholesale (but not retail) investors, launched in Auckland in recent days.

As a further aside, I wonder if Alexander, who depends on his reputation, was wise to compere this function.

I understand Key's ''social influencing'' talents but Alexander has a fine reputation to uphold and, being self-employed, should surely restrict his appearances to the least controversial undertakings.

The Chows want the new fund to finance their own property developments and believe the fund will be successful without the inflexible constraints that come with bank loans.

These inflexibilities might include a high level of pre-sales before any lending takes place.

In this demand a bank is actually helping the unsecured creditors, even if that outcome is accidental.

In my view the Chow fund, with all of its obvious risks, the largest being a cyclical downturn, should be paying investors a rate similar to what the Chows plan to make – 20%.

The investors might rank slightly ahead of whatever Chow capital is in the fund, but the distinction is meaningless.

If the development ever fell into the hands of the banker, and thus ended up in the hands of a receiver or liquidator, the only people who would ever see a return would be the banks and the Cheshire Cat receiver, who under existing idiotic law, is effectively accountable to none of the unsecured creditors.

History suggests the greater the recoveries the higher the receiver's fees, meaning more snowballs thrive in an inferno, than unsecured creditors benefit from receiverships.

The Government wants property developers to build tens of thousands of houses.

The banks will baulk if property development lending requires more bank capital.

The Government might think it could become a property development lender.

The Government's regulators might allow the Chows to fund their developments with wholesale investor money.

But none of these solve the problem, other than temporarily.

As the funding is inherently very high risk, the only meaningful solution is a very high lending rate drawing attention to the height of the risk.

Twenty percent has a nice ring to its bell.

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WHEN did New Zealand last produce a listed public company chairman who took a stand against the nonsensical salaries and bonuses awarded to company executives?

Perhaps the gravelled tones of Ron Trotter might have protested, perhaps Jim Wattie, or Woolf Fisher had a view, but in recent times there have been very few who have observed that invisible fine silk does not exist.

So the chairman of both the ugly Sky City Entertainment Group, (a casino-based company ex-Brierley) and the rather more salubrious Summerset Group, Rob Campbell, deserved full attention when he spoke out last week.

Campbell has had a most unusual path to public company chairmanship.

After an era of Tom Skinner, Jim Knox and Fintan Patrick Walsh leadership in trade unions, Campbell arrived as a representative of workers, clutching not a pint of Red Band but a glass of merlot, talking not about saveloys and chips, but discussing scallops and crayfish.

He was effective in union representation, despite his culinary tastes.

Yet it was a surprise to see him transition to corporate governance, where his skills converted him to extreme wealth, a condition he might once have mocked.

Last week he observed that executive pay and bonuses were excessive, and needed addressing.

In New Zealand this is obvious, average listed company CEO wages now averaging 20 times the average pay, whereas in the 1970s, that ratio was often three or four times.

Yet we are but babes in the woods compared to the USA or Britain, where the ratio exceeds a riot-threatening 200 times, the USA S&P500 CEOs averaging $20 million a year.

The ratios are revolting.

They began to multiply in the early 1980s and in New Zealand, probably linked to that awful era when the likes of Chase, Equiticorp, Brierley, Jones, Renouf, Judge, Euro-National, National Pacific, Pacer Kerridge and Fay Richwhite were breeding their acolytes.

What began with no laws to prevent insider trading converted to an era when the media abetted anyone who handed out bottles of red wine, enticing the media to depict corporate chiefs as people who could feed millions with a snapper and a loaf of Vogels, rather than as plebians with the ambition to become patricians.

Corporate rewards became revolting, creating a new tier of people who captured wealth from the middle classes yet enjoyed the media's adulation.

Campbell may now generate new thinking on the subject.

His Sky Casino group grossly overpaid its previous CEOs and should now revert to acknowledging that its product range hardly requires unique talent to maintain its market position. Casinos do not find solutions for viruses or solve quadratic equations.

The same could be said of most of our listed public companies.  It would be possible to make a case that today's extreme packages for executives are simply theft from shareholders.

The same argument would hold up if directed at those fund managers who claim some of the rewards that can be accomplished with high risk, when the only money at risk belongs to people other than the fund manager.

The argument might also hold water in the debate over whether any fund managers should ever ''own'' the contract to manage money but should instead be able to be replaced without cost, if a majority of investors are unhappy with the fund manager.

Corporate executives of listed companies who do their job brilliantly can be rewarded by backing their ability, buying shares in the company and benefitting from the share price recognition of their excellent performance.

Privately-owned companies can do what they like.  As long as they are not using ''other people's'' money, they cannot be said to be stealing from their shareholders, or others.

Campbell's social concerns and range of experiences make me wonder if his name is in the frame for a future governor of the Reserve Bank.

If it were in that frame then banks should start lobbying to hold on to Adrian Orr forever.

Campbell's varied perspectives might well be the catalyst for new thinking about many issues, with corporate excesses being just the first.

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David Colman writes:

It was great to see another company added to our local exchange with HMY - Harmoney being the latest addition to both the NZX and ASX on 19 November.

A$92.5 million was raised at A$3.50 per share, giving the company at listing a market capitalisation of just over A$350 million.

Funds raised are intended to fund growth in the Australian and New Zealand personal finance sector.

Peer to peer lending was discontinued on 1 April 2020 but personal finance needs continue to be met by the company via personal loans arranged quickly online.

The current loan book totals approximately NZ$470 million to new and repeat customers across Australasia.

Harmoney charges hefty establishment fees to borrowers and receives a net interest margin being the difference between the interest rate charged to the consumer and the interest rate paid to the wholesale lender.

An operational update comparing the four months to October 2020 versus forecasts showed total income marginally ahead (2% higher), and net profit well ahead (52% higher) with the loan book and loan originations very close to forecast.

Following the IPO, HMY shares have initially traded at slightly below the listing price with a low volume of shares trading.

Trading volume is constrained by 72.3% of the company's shares being held by larger shareholders including various companies, trusts and senior management that cannot sell under voluntary escrow arrangements.

Escrow arrangements permit selling after the publishing of half year results (for the period ending 31 December 2020) for unaffiliated shareholders, or full year results (for the period ending June 2020) for affiliated shareholders.

Harmoney's first interim results as a listed company for the period up to 31 December 2020 are scheduled to be released in February 2021 at which time unaffiliated shareholders will have the opportunity to sell shares if they choose.

NZX-listed Heartland Group (HGH) holds 8.4% and formerly listed Trade Me holds 7.6% of the shares on issue.

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ANOTHER IPO is also in the works with the New Zealand Rural Land Company (NZL) offer open since Monday evening.

NZL is looking to raise between $75million and $150million to fund rural land acquisitions, buying land from farmers and then leasing it back to those farmers.

Acquisitions will have the combined goals of providing growing recurring revenue from long term leases from quality tenants and capital growth from land value gains.

The company is at a very early stage, has no financial history and has not yet entered into any contracts to acquire land, dairy farms being its initial target.

Investors should read the offer document carefully and seek advice before committing to the issue.

The NZX will be ecstatic to see increased IPO activity that may help stem the trend of companies opting to list across the Tasman and help replace firms that have delisted following successful takeover offers.

A rural based property company will provide an additional option for property investors in a sector that is not represented on the exchange at present.

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TWO weeks ago I wrote about the then imminent IPO of Ant Group, which is China's largest financial technology group.

The IPO was to be the largest in history but with less than a week before the shares could trade specific regulations were drafted concerning micro lending which affected a large and growing part of Ant Group's operations.

At the last minute the high profile US$34.4billion IPO was suspended and the way the company had marketed the firm as a technology firm (allowing sky-high valuations) was put in doubt as regulators made it known that the firm was seen increasingly as a financial institution for which the new regulations would apply.

Due to the growing number of small online loans by Ant Group (using big bank financing) to individuals and small businesses (which large banks steer clear of directly) the new rules will require the giant Ant Group and other smaller rivals (there are over 7,000 microfinance companies in China) to hold more capital, curbing projected profitability.

Many saw the new regulations as a very public, politically motivated, rebuke of Jack Ma, billionaire founder of Alibaba and Ant Group, who has, too often it seems, been a vocal critic of the financial system that helps fund his businesses.

The regulations themselves likely reduce risk for most parties involved (including retail investors) but are certain to curtail projected profits, and sharply reduce the indicative value, that attracted investors to the now suspended, and perhaps cancelled, Ant Group listing.

Alibaba, which holds a third of Ant Group, saw its market capitalisation fall by more than twice the value of the IPO in the days following the release of the draft regulations.

The scuppered IPO is a good reminder that, especially in communist countries, even a giant company is at the mercy of government intervention.

The complicated mix of communist doctrine and capitalist driven expansion creates a confusing and sometimes uncomfortable business landscape in China.

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Ryman Healthcare has announced a new issue of 6 year senior secured bonds with our estimate of the interest rate being between 2.20% and 2.50%. The interest rate will be set on the 7 December.

The issue will be fast-moving, booked by contract note with brokerage paid by Ryman.

More details are available on our website on the Current Investments webpage.

Please contact us if you would like to go on the list to invest in the bonds.


Chris will be in Albany next Tuesday 1 December (pm) and in Ellerslie on Wednesday 2 December (am).

Michael will be in Hamilton on 7 December and Tauranga on 9 December.

Please let us know now if you would like an appointment in your town.

Taking Stock 19 November 2020

Chris Lee writes:

THE large number of well-off New Zealanders who switched their international travel plans to a domestic tour of the South Island will have reduced the pain of the tourism sector there.

By no means have they eliminated that pain.

There were two obvious outcomes on display when my wife and I toured the South Island in October, varying our stops to include calling on friends and business leaders whose company we enjoy.

The bad news was that many tourism businesses were attracting small numbers of mostly senior New Zealanders, but very few of the younger people who might thrill seek, imbibe thirstily or spend with abandon.

Revenues will not be nil, but they will be down.

The good news was that the productivity of the South Island continues to offset those North Island cities whose business contributions have arisen from the growth of local and central government bureaucracy and from what could be described as the ''financialisation'' of business activities.

They do not call the South Island The Mainland for nothing!

Perhaps some will define the era of ''financialisation'' as coinciding with the change in corporate objectives to a focus on short-term profits, bonuses and dividends, from the old boring objective of ''excellence'' in products and services. Farmers, viticulturists and real people aim for excellence.

(I should develop this argument in a later newsletter, but I agree totally with SkyCity chairman Rob Campbell on the subject of absurd executive and fund manager bonuses. Perhaps his senior executives who all resigned were under notice!)

The South Island paddocks were generally lush, especially in Southland; the Motueka Valley conversion to hops for craft beer is visually impressive; the glory of Wanaka in spring is unchanged; the vineyard owners of Marlborough keep finding new land with access to water and the Southland fishing industry reports access to adequate inshore stock.

The dairy farmers in Canterbury have had just enough rain in most areas.

Commodity prices are favourable, costs manageable and there are ample buyers for our wine, milk, meat, fish and crops, though lamb prices are well off their 2019 highs. Even the value of fine wool seems to be rising.

The problems are in other areas, labour availability being the worst, local government consent processes and central government clumsiness coming close behind, and the disruption to supplies from overseas being a real issue for retailers. (Waiting time for tyres for my car is five weeks!)

The NZ incoming tourist numbers, previously projected at four million, included tens of thousands of people who fill the jobs that our productive sector must offer, and also meet the needs of the tourists who simply want to eat, drink, spend, photograph and rest in well-managed accommodation.

Take away the young tourists, who in essence are on a working holiday, and in headline terms you are taking away the labour that services the wealthier tourists and the productive sector.

The result was visible in Hanmer Springs, where the iconic local hot water springs have had to close by 6pm because there is no workforce to work into the evenings.

So the tourism sector cannot optimise its service to the seniors who are holidaying, for want of labour.

The problem is much more serious for the productive sector.

Farmers have lost the Irish, Welsh, English, Filipino, Indian, Argentinian and Chinese people who effectively are the apprentices enabling the agricultural, horticultural, aquacultural, as well as the viticultural and silvicultural sectors, to complete their harvest.

A dairy farmer with several adjacent herds needs ten workers to replace the international workers, in an exquisite area of the South Island.

He offers free lodgings, around $50-70,000 per annum in wages, a month's leave, free electricity, free meat (and milk!) and offers to train motivated people so they might have a pathway through contract milking and sharemilking to farm ownership. He stops short of offering next week's winning Lotto numbers.

Inbound farm workers have always salivated over this package but they are currently locked out.

So how many New Zealanders have applied for the ten vacancies?

Think of the number of feet a monopede has, and double that number.

Clearly the dairy farmer will have to throw in next week's Lotto numbers to attract staff.

The same sort of story comes from Marlborough's viticulturists, who need several hundred people to learn to prune before next year and will need thousands to pick and process grapes. Working hours are flexible and can accommodate parents with school-age children.

Marlborough produces nearly 85% of all New Zealand's exported wine.

In markets like the US, branded Marlborough Sauvignon Blanc is bought for around NZ$15 a bottle, helping NZ to earn more than $2 billion in wine export receipts.

Those selling via bottle stores and supermarkets will be challenged to meet demand. The boutique brands that aim at top-end restaurants, first class travellers and wine tragics are struggling, for obvious reasons. Central Otago has a real problem to address, its high-end brands being short of demand.

The Southland fishing boat owner says his problem is labour. Russian and Ukrainian fishing vessel labour has created a hiatus at Lyttleton, where six huge offshore fishing vessels have been moored for weeks, awaiting the end of quarantines.

Those who have been educated in NZ and might want the financial rewards available in the fishing, wine, horticultural and agricultural sectors, do not seem to be queuing up for the jobs.

So the shortage of labour is a major problem that needs a solution.

So does the complexity of the consent process, where those wanting to renovate buildings before Christmas are forced to re-submit plans, with multiple reviews of all aspects of the consent, if they are to make even the most superficial changes to their plans.

It seems that any opportunity to delay is grabbed eagerly by bureaucrats whose importance and status presumably ends once, many months later, the sign off to move the door mat from the front door to the back is no longer able to be denied.

Our resource consent process in many areas needs to be simplified and abbreviated.

Perhaps part of the problem is the growth in liability to public bodies, stemming from the leaky house era. Fear of liability may be driving the decision-making. So, too, might be mediocrity and laziness and unnecessarily pedantic regulations.

And then there is simply inept and clumsy government behaviour.

As far as our waterways are concerned, these problems began with the surge into dairying, occasionally blighted by stupid farming behaviour, culminating in that infamous John Key aspiration of cleaning up our waterways so they were ''wadeable''. That era set back progress and poisoned some public opinion. Key's government behaved like a bunch of FX traders on this issue.

Personally I think Key's legacy can be assessed by his behaviour with South Canterbury Finance, where political aspirations far, far overshadowed sound thinking, not that we should ever assume that sound thinking is a requirement of those who hunger for power and a temporary spotlight, as Trump craved. Some may argue his close-down of the Pike River disaster was part of his legacy.

But ''wadeable'' rivers was the bleakest of any aspiration and inflamed public responses.

Not ''potable'', not ''swimmable'', but ''wadeable''!

How could Key have even muttered those words with a smile?

To their credit, the likes of Federated Farmers, Fonterra and Synlait and irrigators like the North Otago Irrigation Company (NOIC) have all displayed the sort of leadership that has not surfaced in Wellington.

NOIC will not irrigate farms unless the farmers are passing meticulous environmental audits.

Synlait will not pick up milk from those who pay insufficient attention to water standards.

Federated Farmers and Fonterra have overseen admirable improvements in farming behaviour.

No person has a greater interest in the future health of a farm and its waterways than a farmer. Water is expensive. Land is a treasure.

Yet we now have goofs in Parliament, empowered to enact oafish laws, seeking to impose standards of water hygiene that are unachievable except perhaps at the waterfall at the top of a mountain.

One international measurement of potable water, by the health authorities, requires a DIN (dissolved organic nitrogen) level of less than 14. DIN levels vary, depending on rainfall, as well as many natural events, but is wrongly seen as a simple fertiliser or cattle excretion problem. Our DIN levels are typically less than ten but they are variable.

If a dog piddles in a puddle, the puddled water becomes not potable.

If a dog piddles at the top of the Huka falls, the water quality is unaltered. Rainfall is never constant. The farmers surely are not accountable for rainfall flows.

It does seem sensible to seek a DIN level of much less than 14, to take account of variations in flows. But to seek a perfection reading of one, or indeed anything near one, is an aspiration almost as absurd as Key's goofy aspiration of ''wadeable'' rivers and streams.

Equally, the Wellington lawyer-designed standards of pasture management are risible.

If a paddock has a ten degree mound in it, the jesters want to rule that the paddock cannot be used by cattle of any age.

If a muddy area is penetrated by two inches, via a cattle hoof print, the cattle must leave the paddock, toute de suite, but not to a paddock whose slopes will drain it.

Somebody, somewhere, has dreamt up these sorts of city-based rules to impose on the people whose livelihood depends on their pragmatic pasture control of their own land.

I observed farmers using computer probes and their mobile phone apps to monitor water levels in the top few millimeters, in the slightly deeper levels and then at the water table level. Feeding pastures more water is a decision made with science.

Farmers want the right level of moisture at the first two levels but will not want any leaching into water tables. They do not over-water, nor do they over-feed the grass.

Modern farmers manage these processes as assiduously as a politician might measure the mood of his electorate with the new practice of almost daily internal polling, a move towards the lowest common denominator that makes a farce of governance.

The very clear message to me is that the Wellington rule-makers need to spend much more time with the productive sectors before they make brain-dead, arbitrary rulings.

New Zealand needs the South Island. Indeed, the world needs its contribution to the world's food (and wine) supply.

The South Island needs far better political understanding of how to achieve high, sustainable environmental improvement, without reverting to unattainable, indeed stupid, objectives.

And today's young people, with disdain for the urban school curriculum, need flexibility in education, so that the country can align its future workforce with sustainable employment.

Germany has much to teach us in training a workforce to develop the sort of skills that lead to gainful, enjoyable, sustainable careers.

_ _ _ _ _ _ _ _ _

ONE measure that might be considered is the right for foreign farm workers to quarantine on site.

Surely we must consider the prospect of self-quarantining, perhaps subject to a prison-like ankle bracelet, delivering an electric reminder if a self-quarantining worker breaches his boundary.

How many international business opportunities can we pass up in favour of treating all people as though they are irresponsible?

A voluntary use of an ankle bracelet is surely technically a feasible option to ensure self-quarantining is a viable option.

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Johnny Lee writes:

CONTINUED enthusiasm in markets is having a visible impact across all asset classes, with share prices continuing to respond positively to global developments.

At the same time, house prices are reaching record heights.  Bond yields have also rallied.  The upcoming Chorus bonds may end being priced at a higher rate than initially anticipated.

This rally is largely being driven by further developments from abroad, as a second vaccine, this one from listed US company Moderna, reported success from its clinical studies.  The second vaccine does not have the same stringent temperature requirements for storage, making it more viable for parts of the world where this presents a logistical challenge.  Following Moderna's announcement, its share price rallied strongly, while Pfizer, which produces the ''rival'' vaccine, fell.  Investing in biotechnology companies carries risk – even with success.

However, even in the midst of such a rally, the reality remains that 2020 has been a very difficult year for many.

Napier Port has completed its first full-year report after listing, reporting virtually static revenues and a modest increase in profit.  After cancelling the half-year dividend, the full-year dividend was declared at 5 cents, slightly above the initial forecasts.  The share price fell after the announcement.

Log exports have fallen following the slowdown in China earlier this year.  The cruise season, although shortened due to travel restrictions, saw growth in terms of number of visitors and revenue.  This channel, almost certainly, will see virtually zero revenue next year, barring a sudden willingness of both consumers and nations to accept this as a viable form of tourism.  In the short-term, I imagine both sides are reluctant to re-engage until confidence returns as to the safety of the industry.

Another source of concern for Napier Port surrounds the pipfruit export – specifically, whether the lack of casual labour will result in a fall in throughput via the port.  All of our nation's ports will face this same challenge.  So much of our prosperity relies on our ability to feed the world.

Napier Port's focus was largely on controlling costs, either through deferring or cancelling expenditure, as it sought to endure what has been a difficult period for almost every company.  The planned wharf construction will continue.

The struggles of the Port this year also serve as a reminder of one of the key rationales for selling it in the first place – to de-risk the Council's position, when faced with escalating costs elsewhere. News that Wellington Council is considering dramatic, double-digit rate rises, while clinging to struggling assets, should encourage further debate on this point.

While the broader sharemarket rally is encouraging to see, Napier Port's result should serve as a reminder that 2020 has proven to be a most challenging year for many New Zealand companies.

Companies that rely on physical goods and services – a port cannot be operated ''remotely'' or ''online'' – have limited ability to manoeuvre their business in this environment, and are largely at the mercy of Government decree in these circumstances.

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Edward will be in Wellington on 27 November.

Chris will be in Auckland (Albany) on Tuesday 1 December and in Ellerslie on Wednesday 2 December.

Michael will be in Hamilton and Tauranga during the week of 7 December.

Please let us know now if you would like an appointment in your town.


Chris Lee & Partners Ltd

Taking Stock 12 November, 2020


Chris Lee writes:


IF in the next three years a further 500,000 New Zealanders currently overseas decide to revert to living and working in New Zealand, one of two decisions needs to be made.

1) We must accept pretty much permanent rises in house prices, based on demand exceeding supply (and almost ''free'' money); or

2) We must immediately begin the process of aligning our secondary and tertiary education objectives with sustainable vocations so we can build far more new homes, and manage to meet greater demand with much greater supply.

The first laissez-faire option would lock in social inequality and would lock in constant incremental rises in the ratio of urban properties owned by investors rather than home-owners. It would result in a rise in the responsibility of councils and governments to provide social housing. Apartment living would become the norm.

The second option is worth some effort. It would require the sort of strategic planning that previous leadership of our country had found beyond their intellect or energy levels.

Right now we have Housing Corp, known as Kainga Ora, being driven by talented, businesslike leadership, employing genuinely skilled people. I feel confident about this.

They know that the funding for mass building projects is available but the blockage is the length of the planning and consent programme and the lack of skilled labour.

Yet there is no shortage of young New Zealanders who need a skill and a work ethic. We also know that the politicians and the education sector and the social welfare sectors have been pitifully slow to recognise an opportunity.  Kainga Ora, by contrast, seems to be itching to make progress.

Currently Kainga Ora is building 2100 houses in Cannons Creek, Porirua.

It will build social houses, affordable houses and it will build shelter for those who might otherwise live in the open.

The exploiting of the opportunity to solve problems requires imagination.

Let us say Kainga Ora has the power to appoint Fletcher Residential to build, Beca Engineering to design and an earthmoving company to carve out streets and channels for infrastructure.

Let us call this a $500 million contract. Maybe it is more.

Let us imagine that Kainga Ora makes it a condition of the contract that Fletchers employs a number of local school students and agrees to provide teachers to teach interested local school boys and girls the rudiments of construction so they leave school with a beginner's diploma in construction.

(School principals tell me that, incentivised by such a programme, the school attendance at such classes would be much higher than the current, abysmal, 45% attendance record of many school pupils.)

Let us imagine that Kainga Ora demands that Fletchers contracts are to include these youngsters in its work force and commits to producing an apprenticeship scheme, using the Porirua project as a start point.

Kainga Ora, needing a permanent new work force, agrees to help fund the apprenticeship programme and goes further.

It tops up the Kiwisaver funds of the apprentices with generosity, and offers all successful apprentices access to an affordable house, if their apprenticeship is completed, using Kiwisaver as a deposit. Perhaps it bonds them to work on the Porirua project for several years.

Kainga Ora's social objectives might go even further.

When it builds these affordable homes – maybe 1100 square feet – it might price them at a level that first home buyers can afford, limiting the price so that only 30 per cent of the buyer's income is consumed by servicing debt.

In turn, the new owners would be covenanted to use the same formula, if ever they decide to sell.

What would all of this achieve, if adopted nationally?

1) Meaningful education for the many thousands of school pupils who would not choose to turn up to study trigonometry, ancient religions, Martian history etc;

2) Students educated in trades where a job is a certainty and is sustainable;

3) Students and apprentices incentivised to pursue a relevant career, using the subsidised Kiwisaver scheme at an early age to have access to their own home;

4) Affordable housing for young people;

5) A pricing formula and covenants that excluded investors;

6) The banging together of heads in Housing, Social Welfare, Education and Parliament.

Now for the punchline:-

Kainga Ora is ready to give this a go.

Are the politicians ready to authorise it and to consider it to be a modern model addressing a number of issues on which previous prime ministers have had neither the whit nor the motivation to do anything?

Ask your local Member of Parliament.

They should - repeat should - know about this model. And they should believe in it. It just might solve a number of problems, including the putting of a lid on property prices for first-time buyers.

_ _ _ _ _ _ _ _ _ _

AS someone who believes strongly that unfit and improper people, like lawyers who ambush the lives of young female graduates, should not get a second chance, I find myself cheering for Damien Grant, who seeks a second chance.

Grant is the now seasoned liquidator who, when he was young was an idiot and a criminal, indulging in credit card fraud and other stupidities to do with money.

He went to jail decades ago.

He emerged.

He grew up.

Subsequently, Grant established an idiosyncratic but effective model as a liquidator at a time before liquidators were regulated and controlled by a group of other liquidators, some of whom could kindly be referred to as a status quo, old boys network of undistinguished and often self-serving, lazy, self-satisfied practitioners.

The new group was empowered and is now headed by an institutional fellow, John Fisk, who also heads the insolvency division of PricewaterhouseCoopers.

Fisk, in his mid to late 50s, is a likeable man, has had some successes for creditors in his career, but is a PwC man, the manager of a manual, committed to the high financial rewards system, including handsome bonuses, that characterises the large accounting firms.

To cut to the chase, the Big Four accounting practices, as they like to call themselves, win most of the bank and the Crown-awarded work, are used to advise on the law that governs their own lucrative work, and produce far more multi-millionaires than they produce real leaders with social empathy.

Fisk heads the group that now decides whether liquidators are ''fit and proper'' to work as liquidators.

Grant had a wretched past 25 years ago, but in the last two decades has been a stroppy, effective liquidator who has been brave and is by reputation a fighter for unsecured creditors and mum and dad shareholders of broken companies. He is the liquidator who fights for his clients.

The new regulators decided Grant was not fit and proper because of his historical stupidity and effectively stopped his career. He has been their most effective competition.

Grant went to court and appealed the decision. The Court has told the regulators to consider a new application.

One thing is certain: if Grant were allowed to return to his apparently successful trade, he would be appointed by those who would be fully informed about his crimes 25 years ago.

He would be scrutinised.

He has always fronted up about his criminal past, regularly discussing the misdeeds of his younger days.

I like transparency, I like guts and I like his record of fighting the greedy, such as those who successful manipulated South Canterbury Finance and Allan Hubbard's assets.

I hope Grant is approved.

Full marks to the court judge who called for a new submission by Grant.

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Johnny Lee writes:

A TUMULTUOUS week, which saw US sharemarket indices climb almost 10% at one point, is almost at an end, as the world ponders two important developments.

Firstly, the US election has taken place, providing most investors with renewed certainty on the political path forward. Although there remains some contention within certain circles, the end result appears to be the appointment of a new leader for the world's largest economy. Joe Biden's approach, as well as his agenda, will be different from the previous leader, although the actual change he is able to effect may be determined by the make up of the various houses of power within the US.

Secondly, the announcement regarding a potential vaccine for Covid-19 sent shares sharply upwards, especially those shares that had earlier seen the largest declines. Airlines, cruise lines, movie theatres and restaurant stocks, which have been hammered this year, were amongst the biggest winners. Gold, and stocks that have demonstrably benefited from the spread of the virus (such as Zoom), fell in value.

In New Zealand, the biggest gains were seen by the likes of Air New Zealand, Auckland Airport, Vista Group and Tourism Holdings, although gains were seen across the board.

Subsequent announcements around the likely timeframe for the rollout of such a vaccine tempered enthusiasm. The ''return to normal'' would take many months – likely years. By then, millions more would be infected, as the US continues to see record numbers of new cases and deaths. Companies would fail in that interim period.

Nevertheless, the news was undoubtedly positive overall and saw an uplift in share price valuations globally. Our own stock market was somewhat muted – due to the large weighting afforded to Fisher and Paykel Healthcare, which saw a large one-day decline. Owners of shares such as Mainfreight, Meridian Energy, Contact Energy, Chorus and NZX would have seen abrupt increases in portfolio values. These companies continue to trade at, or close to, year highs. Mainfreight's subsequent half year profit announcement sent it even further into the stratosphere.

Investors should maintain a sense of caution and diligence. Ultimately, although Covid-19 remains the topic du jour, underlying global issues remain without a solution. Issues pushed aside in favour of dealing with the pandemic, such as global indebtedness and climate change, will eventually need to be addressed.

Structural change has occurred throughout this year, and certain changes to consumer and employer behaviours seem destined for permanence. Changes to business models, forced on companies by the virus, have in some cases revealed opportunities to act as a proof of concept. Working from home has been met with success by some major US employers. Consumption of products, ranging from entertainment, financial services and even clothing, has increasingly moved online, removing the need for a physical retail space. Even the normalisation of the wearing of masks and sanitising of hands has the potential to lead to economic gains, as global influenza cases drop.

The year has seen a significant increase in sharemarket volatility. March saw the largest sell-off of in New Zealand equities for many years. Catastrophic data from major European countries prompted widespread de-risking, sending share prices lower. Investors, justifiably, responded to the data emerging. The introduction of billions of dollars to support industries and employers, as well as improvements to diagnosis and treatment of the pandemic, led to a large bounce in world sharemarket indices, including our own. Indeed, if the current rally is sustained, this may end up being one of our strongest years on record.

The developments seen this week are positive and justify the meaningful short-term response we have seen. However, there remains a lot of progress to be made before we can start to see a return to ''normal''.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _

THE announcement regarding a takeover of AMP Group, made earlier this month, may finally offer a conclusion for beleaguered shareholders of the financial services group, and provides further evidence that the industry is undergoing consolidation.

The takeover is still in early stages and may fail to eventuate. Several takeover offers have fallen over this year, as the economic environment continues to fluctuate between confidence and concern.

The past decade has been a disappointing one for AMP shareholders, despite the overall strong performance of the market at large. Since the appointment of CEO Francesco de Ferrari two years ago, the company has been focused on divesting itself of assets and handling several legal disputes, ranging from sexual misconduct to misleading the regulator.

The announcement comes as the share price reached its lowest ever point. The share price bounced after the news, firming up further after AMP suggested the bid would be worth close to $1.85 AUD. The share price continues to trade below this point, perhaps reflecting the uncertainty of the situation.

The buyer named in the announcement, Ares Management Corporation, is a global, US-domiciled investment manager. Its Private Equity arm describes its ''primary areas of focus'' to include investing in ''distressed and opportunistic'' assets.

AMP, which manages billions of Kiwisaver funds and is currently one of the ''default'' funds used by new entrants to the workforce, has long been considered an underperformer. Cash outflows continue to hurt the company, as well as reputational damage from the fallout of the aforementioned legal battles. A shareholder revolt in August of this year saw several management changes, including the resignation of the chairman.

For shareholders, the best-case scenario may now rest in a bidding war for its assets. By selling off assets and simplifying the business, it creates a more palatable acquisition target. This strategy of simplification is not unique to AMP.

The financial services sector, especially at the larger end, has been moving towards consolidation for some years now. After an extended period of expansion, both in terms of geographical spread and service offering, most are now firmly focused on ''returning to core'', by selling off assets that produce what is deemed to be an unacceptable return. The days of banks ''doing it all'', including funds management, insurance, foreign exchange, mortgage lending, real estate broking and financial advice, has ended. Westpac's announcement yesterday, selling its high net worth financial advisory business to Forsyth Barr, continues this trend.

With low interest rates here to stay, one imagines that some of what ''core'' is will continue to see change. Some services, including mortgage lending and transactional accounts, will have a long-term future. Foreign exchange may see more competition from low-cost disruptors. The nature of bank branches may even see change, with neutral branches servicing all the banks, or branches going entirely digital. Clearly, there is little appetite to servicing branches around the country for each individual bank. ASB's announcement of another round of national branch closures is further proof of this. The current trial underway of ''Regional Banking Hubs'' will be important to test the viability of these ideas.

Like most industries, banks tend to do well when the economy is strong – when people are spending, when people have jobs and when confidence is high. When people begin losing their incomes, belts are tightened and borrowing dries up. This year has undoubtedly been a challenging environment for the banks, with a huge drop in confidence earlier this year. Both ANZ and Westpac, our major listed banks, have reported large falls in profit this year, either slashing or cancelling dividends in the process.

For AMP, moving into private ownership after 22 years of listing what was until 1998 an insurance mutual, marks an end to what has been a roller-coaster for investors. After listing at $36 AUD, the share price has declined steadily, marked by self-inflicted wounds and poor performance.

The only winners from the AMP, National Mutual and Tower demutualisations were those who sold out at the first opportunity. Long-term shareholders have lost significant value, and the offer from Ares, if it eventuates, may give those shareholders an opportunity to crystallise that loss.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _


Johnny will be in Christchurch on November 25 at the Russley Golf Club.

Edward will be in Auckland on November 20 in the CBD.

Chris will be in Albany on December 1 (PM) and at Ellerslie (AM) on December 2. He will be in Christchurch December 8 (PM) and December 9 (AM), at the Airport Gateway Lodge. This will complete his travel programme until February 2021.

Chris Lee & Partners Ltd

Taking Stock 5 November, 2020


WHATEVER might be one's opinion on the merit of the exponential financial growth over recent decades, all based on the vacuous practice of unlimited trading of financial assets and derivatives, there can be no question that this growth has changed the world.

The fact is that the game of pricing bits of paper now attracts many of the cleverest, and for the meanwhile is seen as a more fulfilling and rewarding occupation than adding value by producing essentials, like food or shelter.

The ''weighing'' of products and services (establishing their second-by-second worth) is alleged to be a more lucrative use of good minds than the creating of the product.

This phenomenon has dominated the past 50 years and has led to the vulgar capturing of wealth by the likes of Goldman Sachs. It is now somewhat crassly described as the ''financialisation'' of the world of business.

It has led to one obvious new need.

If so much energy and such a high proportion of our personal time and money had to be focused on those in the financial sector, we simply had to have access to information on who was controlling the business sector, what the different people were doing, how they were controlled, and what the best estimate of the underlying value would be, of the goods whose prices they manipulated. We also needed to know which people were poor types.

So it became crucial for the public to discover the true value of all this money-capturing activity and discover who to trust. FX dealers? Asset arbitrageurs?

If this were the responsibility of the media, how could the media attract the discerning, wise people who would decipher all this frippery and present their analysis in a form that was useful for those engaged in the real world of adding value, living, and squirreling away any surpluses, rather than gambling on asset trading or FX?

That question brings me to a limited-edition book which was released from embargo this week.

I read it while my wife and I sauntered around the South Island, observing the productive base of New Zealand, visiting friends in different areas, discussing what some would say was the real world.

Farmers, fishermen, wine masters and large business owners discussed real matters, not financialisation, derivative trading or corporate bonuses.

So I read ''A Business Revolution'', a history of New Zealand's National Business Review, which in its best days was a product formed by courageous people, addressing a real need.

The book has been written by Hugh Rennie QC, who retired a month ago after a respected and distinguished career in which, in his own under-stated way, he has made such an immense contribution to New Zealand that he should be regarded as a champion of justice and good practices as well as a wonderful man.

In particular he has contributed to the development of the business media, broadcasting in general (as former chairman of the NZ Broadcasting Commission) and business generally, where his directorships have included some of our largest companies. He has had a focus on the law but also on justice.

I should disclose that he is a friend who has kept me and many others largely free of vexatious, pompous people whose behaviour has been criticised. In doing this he became an authority on defamation law, a subject very few in the legal profession seem to have studied with any intelligence.

Rennie has written A Business Revolution as an original shareholder and long-time chairman of the National Business Review, confining his focus to the NBR's first 20 years, an era which defined his personal involvement.

He traces its contribution to New Zealand during the first decades of ''financialisation'', the period when the public was forced to endure this ''new'' wizardry.

The NBR was, during that period, our only meaningful source of business news analysis and investigation of inappropriate behaviour. It took great risks to expose chicanery.

The daily newspapers generally tagged timidly along with their advertisers, occasionally, but too rarely, attracting the sort of talent who now would see their name in NBR's Hall of Distinction, the roll call of journalists and analysts who NBR employed, trained and nurtured.

Rennie's book briefly discusses some of the major successes the NBR had in exposing the deceitful behaviour of the likes of JBL, Securitibank and the Cornish Group, in the 1970s.

I guess you could call these rogue companies the forerunners of the likes of Hanover, Bridgecorp, St Laurence, Money Managers, Reeves Moses, Vestar and, perhaps, Brierley Investments.

Rennie's book discusses the extraordinary dedication of those who founded the NBR, the risks they took, their success in tackling the malfeasants, without the need (or capacity) for a defamation-fighting fund, and the triumphant eventual achievement of meaningful profits and dividends, as the public bought the weekly, and for a short while, daily business paper.

He lauds, and displays affection for, the late Warren Berryman, whose intuitive instincts led to many investigations, exposing rot in the business sector. Berryman remains the gold standard, unmatched since his premature death.

Rennie lists those who made real contributions to NZ business journalism, including current heavyweights like Pattrick Smellie, Jenny Ruth and Tim Hunter.

His book is not a potboiler. It addresses a specific market. It deals in facts. Nor does it present the sort of meaningless dross that discusses one's money personality or the adequacy of one's savings – books to which teenagers may succumb, to appease their grandparents or primary school teachers, but are of no value to financial market adults.

Rennie's book is an elegantly written documentary on a specialist business newspaper that was needed to match the first decades of the changing world that allowed financialisation to dominate our society, as it does today.

His subtle sense of humour and deep inside knowledge appear tantalisingly, leaving me with a growing hunger for another edition, in which Rennie, surely a prince in the world of Queens Counsellors, reveals more of his deep knowledge. I guess his retirement will need to distance him from ethical barriers before he can reveal more in a future book.

Just 400 copies have been printed. A re-print seems inevitable.

The book is printed by one of Rennie's previous NBR co-founders, Ian Grant, who with his wife owns Fraser Books, based in the Wairarapa. The publisher of the book, Grant was an original NBR investor and director, and is a close friend of Rennie.

To me, Rennie's book is not just a most welcome description of the beginnings of an era but also a solemn reminder of how patchily our business media in New Zealand has evolved, since the NBR's breakthrough first two decades.

If we were ever to reverse ''financialisation'' and unpick the worst of those who mis-use ''other people's money'', we would rely on a much better funded business media, attracting more journalists and analysts with personal knowledge and experience of the real economy.

Until that transition occurs, the media will continue to revert to shallow, gushing fund managers supplying cash-strapped media with slanted sales-focused stuff, dressed up as useful commentary, another version of dross.

Rennie, Berryman and others mentioned in the book make great personal efforts that should have been replicated by others, leading to a much better informed public than we now have.

The book can be bought via this website: www.fraserbookspublishing.nz. It is also available in selected bookshops including Unity Books and Victoria Book Centre in Wellington.

_ _ _ _ _ _ _ _ _ _

IF THE five daughters of the late Allan and Jean Hubbard had overcome the deep cynicism they must have developed when their father's empire was destroyed, they would have been generous in the extreme. They have had every reason to be deeply cynical of the public, political and private sectors.

Names like Key, English, Power, Park, Downey, Paviour-Smith, Edgar, McGlinn, Diplock, McPherson, Parsons, Burnett, McLeod, Bosworth, Sullivan, Maier Junior, Harmos, McLauchlan, Baillie, Shale and Hennessey are hardly likely to appear in any hall of fame that the Hubbard women create.

Those people all feature in my book, The Billion Dollar Bonfire, that describes their failures, their contributions to the destruction of Hubbard's empire.

Despite this disruption, somehow Hubbard's estate did recover some useful assets, quite probably a dairy farm or two, survivor of the several dozen dairy farms which he had owned or part-owned, often making him Fonterra's largest supplier.

If the Hubbard daughters retain a dairy farm or two, they would have received in recent days a letter from one Annabel Cotton. This letter might have brought cynicism flooding back to them.

Cotton is a woman who inherited a dairy farm and has it managed for her, as she seeks to make her living with consultancy or directorships roles, based on a qualification in accountancy.

Ten years ago she succeeded in becoming for a short period the chair of the Securities Commission where she had a hand in preparing the Code of Conduct for financial advisers, and where she presided over major issues, like the fate of South Canterbury Finance and its subsidiary Aorangi Securities. Thankfully, the Financial Markets Authority replaced the Securities Commission and Cotton retired from the role.

She now seeks a lucrative and prestigious role as a director of Fonterra, an appointment that would be her career highlight.

In search of votes, she has written a glowing description of her career, strongly promoting herself to influential Fonterra farmers for this director's role.

She assesses her strengths as coming from a commitment to deeply-researched decision-making and governance. She says so in her plea for farmer support.

The Hubbard daughters may not have choked on their porridge when they read this, but they surely would have paused to reflect.

It was Cotton who chaired the Securities Commission meeting when, within hours of receiving a dreadful, careless report, her Commission recommended to Key's Commerce Minister, Power, that Hubbard be placed into Statutory Management, effectively ending the hopes of his recovery.

The appalling investigation reached false conclusions, based on the flimsiest examination of Hubbard's dairy assets. It concluded that Hubbard had defrauded Aorangi Securities investors by channelling their money to himself, unsecured, to enable him to buy dairy farms.

The investigators, McGlinn, McPherson (Companies Office), Parsons (a forensic accountant) and Burnett (a lawyer), reached this life-changing conclusion yet did not make the obvious checks of examining Aorangi cheque books, bank statements, and journal entries. They reported to Cotton's commission that the Aorangi Securities investors would lose tens of millions, as a result of this (non-existent) fraud.

Worse, they somehow felt able to report that Hubbard agreed with their analysis.

Hubbard's later affidavits confirmed he was never asked to comment on these conclusions and would hardly have confessed to misdeeds he did not perform.

The allegations of borrowing money personally were never permitted by Aorangi's directors.

The conclusion was untrue, and derived from the incompetence or the joint errors of an investigative team that today must feel deeply disappointed with their performance, perhaps to a level Tiger Woods would feel over a succession of air shots, and a subsequent failure to add these to his score.

The Securities Commission was shown the report only hours before it made its recommendations to Power.  No one has ever explained why such a report was never fact-checked.

Cotton was using a car phone near Hamilton when she chaired the fateful meeting, despite having no meaningful opportunity to digest the report, let alone research its findings or question the facts.

The Hubbard daughters may well surmise that this example of Cotton's commitment to deep, researched-based governance was the exception to the normal standard. It would be the ugliest of mistakes. The flawed recommendation had disastrous consequences for the Hubbards, for SCF investors and the country.

Power, as the relevant Minister, hastily accepted the recommendation and placed Hubbard, Mrs Hubbard and a number of their corporate entities into statutory management.

Power told the media that Hubbard's alleged fraud would lead to huge losses for Aorangi investors. He continued to say this for many months.

The announcement that Hubbard was a ''confessed fraudster'' opened the door for Key to make catastrophic and brain-dead decisions that cut off a solution offered by fund manager Duncan Saville. That solution could have saved the country a billion dollars at least, as time has demonstrated. All Saville wanted was time.

Key had become empowered to argue that the country could not offer Hubbard's assets to a new investor, since Hubbard was a thief.

So here is the punchline demonstrating why cynicism is acceptable.

Within a week of being appointed the statutory manager, McGlinn, as part of the bumbling investigative team, discovered the journal entries that proved Hubbard had taken no money from Aorangi Securities.

The reverse was the truth, he discovered. Hubbard had inserted some of his own farming assets at conservative valuations to underwrite any bad debts in Aorangi's loan portfolio.

Hubbard was doing exactly what he said he would always do – use his own assets to protect investors from potential losses. He was not taking, he was giving. At worst, he was fixing up his sometimes naïve lending decisions (to others).

Here is the second punchline.

As I discovered in Justice Helen Cull's decision in a related court case, McGlinn discovered the truth within days and shared his discovery with the authorities.

Yet neither Cotton, Power or Key revealed the errors and Hubbard, based on a false accusation, remained stigmatised and stripped of access to his money and assets. Indeed, Power and Key continued to assert that Hubbard was the culprit, not the victim.

Perhaps somehow Key, Power and Cotton were left off the circulation list of the discovery of the error, however improbable that would have been.

The ultimate outcome was that Aorangi, far from costing investors any money, had enough nett assets to pay a gluttonous $22 million of fees to the Statutory Manager, repay $13 million to the Hubbards and repay all investors.

If there have been worse outcomes caused by careless investigations, poorly researched ''governance'' and cynical and self-focused political leadership, then I am unaware of such an example of laziness or incompetence.

I doubt the Hubbard family is any better informed than me.

Cotton's application last week to farmers for their support in her quest for another directorship should have used this Hubbard experience to underpin her credentials. I suggested that to her in an email. (It was not acknowledged.)

Had she discussed the error and highlighted how it provided lessons for her that have made her today a potentially better director many, including me, might have been impressed. One should learn from one's errors. It should gird one's loins.

I doubt the Hubbard family is so forgiving.

The error of Cotton's Securities Commission, based on a blundered investigation, cost the Hubbard family at very least tens of millions, perhaps hundreds of millions.

Hubbard and South Canterbury Finance's assets properly nurtured by intelligent, careful people, would have achieved value of at least a billion dollars more than the recoveries of the amateurish, indeed moronic, recovery processes.

Had anyone researched the investigators' flawed report, this loss might never have happened.

The receivers, statutory managers, lawyers, valuers, investment bankers, accountants, auctioneers, opportunists and various wide boys would not have captured a billion of money owed to the taxpayer.

Had Cotton, Power or Key performed basic research, such as picking up the phone to talk to Aorangi's other directors or to Hubbard himself, the inferno of public money would never had reached the billion dollar quantum. Instead the investigators' report would have been binned.

There may even have been a nett gain for the Crown as there was with Aorangi.

Fact-checking is always a good idea.

One hopes the long list of poor performers have all learned from their failures.

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TWC Quantum is proposing to issue shares in a recently renovated building in Wellington, which is currently being converted into residential apartments. A long-term lease will be put in place to give investors certainty of income.

The projected income, after expenses, will allow for quarterly dividends at a rate of around 7.50% per annum.

It is proposed that the building will be funded by 50% equity and 50% debt with a proposed minimum investment size of $10,000.

This will all be detailed in the offer document once completed (likely mid-November).

If you are interested, please contact our office to be added to our list of potential investors.

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Johnny Lee will be in Christchurch on 25 November.

Edward will be in Auckland on 20 November and will see clients in the CBD.

Please let us know now if you would like an appointment in your town or if you would like us to visit your area.

Chris Lee

Managing Director

Chris Lee & Partners Ltd

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