Kupe shows spirit in tough times

Press, 5 December 1988, Page 17

Kupe shows spirit in tough times

By

DAVID HAY

What can we do when market conditions turn against our business? Kupe Group, Ltd, shows one approach: to bravely continue with its property developments, and even ask its shareholders for more money.

Kupe is mainly known for being one of the victims of the Judge Corporation collapse, and for its 1988 result, a loss of $155 million. But it is still a significant New Zealand company, with more than SIOOM in share capital and reserves. And it plans to continue with major property developments in Auckland and Wellington. Not many companies have the confidence to make a cash issue this year, although this one could succeed for unusual reasons.

Kupe started as an oil explorer that was restructured and merged with Apex, an investment company set up by PPCS, a meat company. Now its mission is to complete its two major projects, the Wellington Parkroyal (which is in progress) and the $1.6 billion Britomart project proposed in central Auckland.

The first step is for the shareholders to put more money in. The cash issue will raise SIIM from the shareholders (and the underwriters). Kupe is in a strong financial position at present. The company

has assets of SI44M, and there is only S44M due to lenders and creditors. There are net assets of 74 cents per Kupe share. But the share price, which has been as low as 20 cents, recognises that a lot needs to happen before the 74 cents can be turned into cash.

The value that the shares can be issued at also reflects the company’s results, and the risks of the business that it is in. Most of last year’s loss “occurred as a result of equity investments made in Judge Corporation and its related companies, Renouf Corporation and Ariadne Australia,” the chairman, Mr P. W. Grayburn, explains in the annual report for the year ended August 31, 1988.

Although the reported losses are in the past, there are only limited sources of income, and as the report says “it is unlikely that the group will make significant realised profits before the 1989-90 financial year.” The issue at par, 50 cents, might seem cheap for shares with net assets of 74 cents. But since the shareholders can buy more shares on the market for 20 cents, it seems surprising for the company to ask them to take up an issue at par. But the offer is at the lowest price that the company is al-

lowed to issue shares at under the Companies Act. New shares that are not taken up will be subscribed for by the underwriters, Euro-National Corporation and Government Life Insurance Corporation (who are both major shareholders already). But a surprising number of shares might be taken up. Kupe has a high proportion of small shareholders. There are 24,000 people who hold less than 10,000 shares each, an average holding of only 1150 shares each. To make the offer more attractive, only 5 cents per share has to be paid this year, with the rest in-terest-free until 1990 and 1991. On average, each Kupe shareholder is only being asked for about $lO now, and for a total of $lOO. That might tempt the shareholders to take up the issue in spite of its unfavourable price.

The company does not give the impression that there is any doubt. But it will be interesting to see whether Kupe will succeed with its share issue at 50 cents, compared to the market price of 20 cents. And whether Kupe will complete its projects, and realise its 74 cents per share. David Hay is a lecturer in professional accounting at Lincoln University College.