Stock tender ‘fiasco’ to cost $500M: M.P.

Press, 18 January 1986, Page 8

Stock tender ‘fiasco’ to cost $500M: M.P.

Special correspondent

The National member of Parliament for Tauranga, Mr Winston Peters, last evening called for “heads to roll” in the Reserve Bank for the $lOO million Government stock tender default “fiasco,” which he said would cost New Zealand $5OO million. Mr Peters was angry that one company, with a share capital of only $lOOO, could provoke overnight a “miniWall Street crash,” seriously damage New Zealand’s overseas credit standing, and rob the average man in the street of hundreds of dollars through higher interest repayments. “The direct loss to the taxpayer is between $lO million to $l5 million, but the indirect loss to the country will approximate $5OO million when you take into account the $366 million loss on the sharemarket overnight, the increased interest charges to all borrowers which will go well over $lOO million, and the fact that higher interest rates will rapidly increase consumers’ costs by tens of millions of dollars,” he said.

Mr Peters called for the resignation of senior Reserve Bank heads who held responsibility for accepting the $lOO million stock tender from a littleknown Wellington dealer, Rakiura Holdings, in December, 1985. “The Reserve Bank is hiding behind the excuse that they are seeking legal advice, hoping meanwhile that

the storm will pass over,” he said.

"But if they went into a $lOO million deal with a company that only has $lOOO share capital, without first learning what the company’s legal obligations were, they deserve to be sacked. “This affair stretches even further up. The Minister of Finance (Mr Douglas) has an overseeing role in the bank’s dealings, and it is time we started getting some pretty meaty answers from him.”

Mr Peters said each “man in the street” would pay up to $lOOO more on his loan this year because of the default.

The Rakiura Holdings company is described by stockbrokers as a one-man business of Mr Brian Alexander, a wealthy Southlander.

Mr Peters said that ordinary New Zealanders understood well what had happened to them overnight, and would demand to know how the Minister of Finance had allowed the disastrous situation to occur.

“Essentially this fiasco is like buying a house for $lOO,OOO in December, and expecting that the company will be able to sell the house one month later for $llO,OOO or $115,000,” he said.

“But when January comes round and it is time to pay, the company finds that the house market has slumped and the house is only worth $90,000. “So that instead of mak-

ing an equivalent annual profit of 180 per cent in one month, this Rakiura Holdings company stands to lose $lO million instead.” However, the firm was a limited liability company which was liable only to repay $lOOO on a $lOO million tender. Mr Peters said the failed stock tender deal was worth twice the selling price of the huge finance company, Broadbank, which had just changed hands for $5O million.

The financial credibility of New Zealand had been 6ut at risk by the default. Ir Peters said that the default, and the $366 million loss sustained by shareholders on the New Zealand stockmarket overnight, could seriously damage New Zealand’s AA-plus credit rating, and make potential overseas investors wary. He demanded to know who was going to repay “the man in the street,” who would face increased interest payments on hirepurchase agreements, mortgages, bank overdrafts, car repayments and credit cards.

Who would repay the shareholders who overnight lost $366 million?

Who would bail out the family, which was already hard-pushed by the Government’s economic policies, and which would now face increased costs of food and drink as manufacturers passed on their higher interest rate repayments? “The taxpayer has to pay

twice — he or she must first pay to bail out the Government on this one, and pay again in higher interest rates when the individual goes to borrow money,” Mr Peters said.

Financial analysts say interest rates are expected to rise more than 2 per cent and that mortgage interest rates will stay at their present high levels for at least another 12 months.

Mr Peters said Mr Douglas should be forced to answer questions about what investigations the Government made into the resources of the Rakiura Holdings company before it accepted the tender as the lowest offer. He should be asked what examination it made of the company’s financial track record.

“Are they aware that Mr Alexander had any former connections with the failed Securitibank company,” Mr Peters said. It should be asked what safeguards Mr Douglas implemented to prevent such a default occurring. "This Government is operating a form of free enterprise, but it is a form of State free enterprise — where all the risks are borne by the taxpayer,” Mr Peters said.

“In a true free enterprise system, if you borrow money for a venture and you are successful, the rewards are great. “But, if you borrow money and fail, the penalties and sacrifices are also great. “This has not happened in this case.” Mr Peters said the Government might be embarrassed, but the public deserved an explanation.