Judge saga lands Kupe with $79M book loss

Press, 8 December 1987, Page 30

Judge saga lands Kupe with $79M book loss

Kupe Group had unrealised losses of $79.78 million, relating to Judge Corp and associated companies. In a letter accompanying Kupe’s annual report, the chairman, Mr Peter Grayburn, says at November 18 Kupe had book losses of 552.22 M on its 20.73 M Ariadne shares, $15.89M on its 6.98 M Renouf Corporation shares, and $11.67M on its 3.04 M Judge shares. In addition, Kupe had $9.51 M in unrealised losses on non-Judge related companies. These included the residue of shares from the Apex portfolio. Mr Grayburn says that Kupe has "no intention at the present time of selling these shares at current prices.” Kupe’s net tangible asset backing at balance date was 186 c. Mr Grayburn says, allowing for the loss on share investments if sold at current market value, shareholders’ funds would total $156.86M — an asset backing of 116 c a share.

He says shareholders’ funds could be Increased to $189.86M (140 c a share) if independent revaluations of two major development sites, on which projects are in an advanced stage of negotiations, are taken into account.

Mr Grayburn says the “put option” that Kupe has on Judge to buy 13.61 M Ariadne shares for

$41.2M could add a further 27c a share. However, Judge defaulted on this option last Friday. Kupe could sell the Ariadne shares and become an unsecured creditor of Judge for the shortfall, he says. The shortfall at November 18 was $36.4M. “The directors of Kupe Group are determined to maximise the value of the put option,” Mr Grayburn says.

He says the company is under no pressure to sell any shares at the present depressed prices, as current assets significantly exceed current liabilities.

At balance date, August 31, 1987, Kupe’s current assets of $377.4M comfortably exceeded current liabilities ($203.4M) by nearly 2:1. "Despite the magnitude of the potential losses should the share portfolio be sold, Kupe Group is a viable on-going company with some of the most prestigious development projects in New Zealand, and has ownership of the sites for these projects,” Mr Grayburn says. The annual report proper shows the total market value of property held for development or under development at balance date was $183,000,000. The cost of these properties to Kupe was $146,564,000. Mr Grayburn says the company’s plan to vigorously expand its property development activities has been successfully pursued.

“In New Zealand there are differing views on market demand for office space matching supply in the next five years,” he says.

“Kupe has commissioned studies which identify a growing demand for office accommodation of high quality and central location, especially those linked to retail, conference and hotel facilities, providing good access to public and private transport. “The company is also pursuing opportunities in major cities in the Pacific rim,” Mr Grayburn says. He says that since balance date Kupe has acquired a 50 per cent interest in a portfolio of investment and development properties in south Los Angeles. Kupe’s partner in the joint venture is McLachlan Investment Company, an established California-based developer. The portfolio of developments is to be completed early in 1989. Mr Graybum says the plans Kupe had for expansion into the U.K. were curbed by the changes in the company’s major shareholder throughout the year. “The sale by McConnell Dowell and Graeme Hamilton family interests of their major shareholding in the company to Euronational Corporation, and its subsequent on-sale to Judge Corporation, resulted in the strategy and plans of the company being revised,” he says.

“The prospect of a major shareholder change at that time resulted in the company missing an excellent opportunity to expand into the United Kingdom, through the acquisition of a listed property company.” Mr Graybum says keen interest is being shown by major companies in the controlling shareholding, should Judge decide that it is to be sold.

“The securing of a strong financial major shareholder is very important to complement the direction of the company as a major central business district developer of prestigious projects,” Mr Graybum says.

He adds that a more definitive statement on this subject can be expected at the company’s annual general meeting, to be held on December 1 in Auckland.

As previously reported, Kupe boosted its tax-paid profit by 128 per cent to $50,176,000, for the year ended August 31 (last year $21,981,000). The profit was on lower turnover of $105,649,000 ($289,766,000). The direc : tors said the sales decline was due to the sale of Apex’s investments in the meat industry. The earnings rate on average shareholders’ funds was 27 per cent (16 per cent) and earnings per share were 43.5 c (37.4 c

A final dividend of 7c a share was recommended (13c for the year).