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CBD

The principles of contract killers 

Move over Keynes, Hayek, Friedman, Galbraith and Gittins. A US infantry officer who has served in Iraq has come up with the "most dynamic contribution to economic theory" in more than a century.

“Not since the publication of Alfred Marshall's Principles of Economics in 1890 has such a significant theory relating to the concept of supply and demand been established,” said the budding economic hall of famer Byron Fisher in a press release sent to the Australian media.

"My unique new theory is applied to a host of fields, including evolutionary biology, political science, and the origin of financial markets," he said.

Fisher's book The Supply and Demand Paradox: A Treatise on Economics has already been gathering dust for more than two years.

At least Fisher's book does cover some new ground. One chapter covers "The Market for Contract Killers".

"Contract killers have always had an incentive to supply their services because there has always been a demand for them," penned Fisher.

Nimble Duo

The LJ Hooker board has snared two of the most distinguished names from the finance, doughnut and property sectors: the founder of the imploded Allco Finance Group, John Kinghorn, and ousted Mirvac chief executive Greg Paramor.

"It is exciting to be part of the renaissance of LJ Hooker," said Kinghorn in a media release, which revealed he and Paramor had helped fund the buy-out of the business last month.

"The recent financial crisis has provided many opportunities in the real estate market for nimble, well capitalised companies like LJ Hooker," explained Paramor.

Maybe LJ Hooker is more nimble than Mirvac, which paid Paramor a $2 million goodbye and reported a $1.08 billion loss last financial year. Leslie Janusz Hooker, the Olympic rowing medal winner and martial artist grandson of the company's founder, led the purchase of the firm from Suncorp for $67 million.

LJ Hooker's other directors include the sailor Syd Fischer and McKinseyite Robert McLean. It is believed LJ Hooker is ultimately looking to list on the exchange.

Luckily, it has some directors with expertise in this area. Kinghorn listed his Rams Home Group in 2007 (where he cashed in $650 million), which only weeks after going public was forced to sell its brand name and franchise network to Westpac when the stock was pulverised.

Will UBS again be willing to join forces with Kinghorn for his next listing? It is unclear if Kinghorn has any plans to list his other business: Krispy Kreme Australia.

Wasted rams

Kinghorn might get some curly questions from shareholders at today's annual meeting of Rams, now called RHG Group.

At the meeting the managing director of the investor newsletter The Intelligent Investor, Steven Johnson, and his colleague Greg Hoffman are seeking to be elected to the board.

The former Allco Finance Group boss, David Coe, is also up for re-election as an "independent" director. Shareholders might want to ask Coe why he only managed to turn up to two of the four company board meetings last year.

In his foreword in the recent RHG annual report Kinghorn seemed upbeat. "As shareholders are no doubt aware, the company has no ongoing business.

Its primary objective is to maximise its tangible net worth," he boasted.

No flies on Alan

The Qantas chief executive, Alan Joyce, has been barred from using certain words. Owing to his thick Irish accent, Joyce's media minders stopped him from using the word "third" in his speech to the National Aviation Press Club yesterday.

Joyce also confirmed union suspicions that Qantas management are superfluous. "We have taken out nearly 600 management positions, making ourselves leaner, flatter and faster," he said.

Helping hand

City Pacific's Phil Sullivan has shown some heart by helping the receiver of his crumbled empire sift through the wreckage.

The company receiver, PPB's Ian Carson, confirmed that Sullivan "has been co-operating with us" in terms of helping them understand the in and outs of his business.

Sullivan is possibly helping the receivers analyse the web of related party transactions between City Pacific and its mothballed property developments and satellites.

One possible incentive Sullivan has in helping out could be to show City Pacific investors (aka victims) that he does have a compassionate side.

Sullivan also ranks as an unsecured creditor for the $2.7 million he lent the company last year. Hopefully, unlike the former chief financial officer of MFS, David Anderson, Sullivan is providing his services free.

Got a tip? email srochfort@smh.com.au

 

Insider

By Jamie Freed

No.3 scratched on way to the gate

Memo to float promoters: the market is sceptical of private equity and is looking for value. Or at least those should be the key lessons from the three most recent attempts at large raisings, from Myer, Investa Australian Office Fund and Kathmandu.

Myer and Kathmandu at least managed to price at the bottom of their indicative book-build range, although Myer has so far been unable to trade as high as the issue price.

Kathmandu will not be tested until Friday. But Investa had to be pulled at the last minute when its owner and float co-lead manager, Morgan Stanley, would not give in to demands to price the offering at or below net tangible asset backing.

In a market where other property trusts are trading at sizeable discounts to net tangible assets – in part because of concerns about more write-downs – it was unrealistic to price the float at a premium.

The fact that it was a private equity sale and that management fees were involved only made matters worse.

As for Myer, the shares have risen over the past few days to close 3c higher at $3.85 yesterday.

However, there are concerns that if it finally reaches its $4.10 issue price, there will be a new wave of selling as investors that had hoped for stag profits on the listing head for the exits.

Lining up again

St Barbara's $120 million raising last year was one of the more infamous in the mining industry because the lack of demand from retail investors meant the underwriter, Macquarie Capital, ended up with 10.3 per cent of the goldminer.

Coincidentally or not, St Barbara's long-time managing director, Ed Eshuys, departed soon after the poor raising – not to mention a few margin calls on his holding.

Macquarie eventually sold its $50 million swag of shares at a substantial loss.

In that context, some were surprised Macquarie is sole manager and underwriter of the $124 million rights issue St Barbara launched yesterday, to help redeem convertible notes and fund projects.

Macquarie has agreed to underwrite the full $73 million institutional component and the first $27 million of the retail component.

In return, Macquarie will receive $4 million to $5 million of fees, although even that hefty commission is unlikely to cover its losses on the raising last year.

This time, the raising will be weighted far more heavily to institutions because plenty of funds have joined the register in the last year to gain exposure to rising gold prices.

The new register, combined with the stronger sharemarket, means Macquarie is taking on less underwriting risk for a similar fee to the last one.

For its part, St Barbara told Insider the work went to Macquarie partly in "appreciation" (read compensation) for its hard work on the difficult raising last year.

Shop pickings

Investors could attempt to suss out Westfield's interest in buying part of the portfolio of the bankrupt US mall owner General Growth Properties during the Australian group's third-quarter briefing this morning.

There has been plenty of speculation that Westfield and its US rival, Simon, would be interested in divvying up the better GGP assets.

The strong Australian dollar, combined with a $US6.8 billion ($7.3 billion) untapped credit facility and $US2 billion from a recent bond issue, certainly hasn't hurt Westfield's prospects of financing such a move.

But any reorganisation plan to get GGP out of bankruptcy would also need to consider the lower-quality assets in the portfolio that are unlikely to be of interest to Westfield or Simon.

Citi thinks that is where Canada's Brookfield Asset Management could come in as a cornerstone investor, just as it has with Babcock and Brown Infrastructure.

Brookfield recently raised $US5.5 billion for a real estate distress equity fund and could be interested in a "work-out" portfolio. GGP could raise cash by selling the best assets to Westfield and Simon, allowing creditors to get back some principal.

Then they could convert their remaining stake into an equity interest in a company backed by an equity infusion from Brookfield.

Interestingly, Citi thinks one of the candidates to run the recapitalised GGP would be Glenn Rufrano, currently a director.

Rufrano is also chief executive of the troubled Australian group Centro Properties, but he is set to leave that role in February.

Hybrid time

Given that three of the big four banks have raised hybrids recently to shore up their Tier 1 ratios, it may be only a matter of time before the hold-out, Westpac, follows.

The banks are allowed to hold up to 25 per cent of their Tier 1 capital in hybrids rather than pure equity.

Hybrids now constitute 19 per cent of Westpac's Tier 1 capital, and Citi estimates it has headroom to raise $1.5 billion before reaching its limit.

The timing of any move could be influenced by the global debate about the legitimacy of hybrids as Tier 1 capital. Australian banks are possibly looking to raise the funds in advance of any changes to the limits.

Westpac has a Tier 1 capital ratio of 8.1 per cent – the lowest of its peers and 60 basis points below the third-ranked Commonwealth Bank.

In recent months Commonwealth has issued $2 billion in hybrids, and NAB $500 million. This week ANZ said it would add 30 basis points to Tier 1 capital through a $750 million hybrid issue.

ANZ still has $3 billion of headroom for hybrid raisings which means its raising could be enlarged, depending on demand.

jfreed@smh.com.au

 

Business Briefs

Water

Challenger quits Challenger Infrastructure Fund is to sell its remaining 15.6 per cent stake in England's Southern Water for $302.19m, the equivalent of net asset value at June 30. Southern Water serves about 2.3 million water customers and 4.3 million wastewater customers.

Property

CFS in 12.5c payout Sales at the shopping centres owned by CFS Retail Property Trust rose by 1.3 per cent in the September quarter. The trust said its annual distribution would be 12.5c  unit.

Retail

Shop sales increase Sales at the shopping centres owned by CFS Retail Property Trust rose 1.3 per cent in the September quarter. The trust said its annual distribution would be 12.5c a unit.

Refiners

Mobil extension Caltex will have an extra three weeks to strengthen its case for acquiring 302 Mobil petrol stations before the Australian competition regulator reaches a decision. The competition commission has agreed to Caltex's request to extend the deadline from yesterday to December 2.

Executive pay

Protest dismissed Computershare says it will go ahead with its executive incentive package despite the substantial protest vote at its annual meeting. The resolution to grant $30.78 million worth of Computershare shares to executives who stayed with the company for five more years was opposed by 148m votes, 40.4 per cent of the total.

Finance

Lending on the rise The amount of finance lent to the commercial sector rose sharply in September, from $29.2b in August to $31.6b, according to the Australian Bureau of Statistics. Housing finance for owner occupation increased 6.7 per cent to $17.6b over the same period.

Singtel

Stick with Optus SingTel's chief executive, Chua Chua Sock Koong, has denied that the company has decided to sell part of its local subsidiary, Optus.

Iron Ore

Centaurus merger Centaurus and Glengarry Resources have agreed to merge via an "implementation agreement" and aim to become a significant producer of iron ore in Brazil.