Rams Shareholders Well And Truly Shorn

Sydney Morning Herald

Wednesday November 28, 2007

Edited by Matt O'Sullivan xchange@smh.com.au

Bad luck to buy a mortgage broker six weeks before a credit squeeze.

WITH the mortgage lender RAMS reduced to a rump of its former self, its shareholders at least have a clear view of what the future holds for the credit crunch-savaged group - and it's not pretty.

The only saving grace, if there is one, is that the dramatic fall in value over the past four months since it listed in July isn't likely to be repeated.

It is a classic shell company without the cash and potentially a lot of liabilities which, if it fails to refinance its now costly short-term loans of $6 billion, could see the business's sole remaining revenue generator falling into the hands of the banks.

For existing investors there's no hope of recovering anything close to the $2.21 a share they have lost in the soon-to-renamed RHG Group, following their approval on Monday of the sale of its brand and its home loan origination arm to Westpac.

With the broker Merrill Lynch putting a best-case 41c-a-share value on the carcass, all they can wish for is a small recovery in the price plus any eventual dividend that may arise from the company being able to find slightly cheaper long-term funding for the $14 billion loan book it is left with.

RHG is a business in run-off and the real question is whether it oversees that to its inevitable conclusion or whether another provider comes in - which seems more likely - to take its dwindling loan book off its hands.

To that end, RHG is a punt that more-risk-taking market players may be prepared to engage in, since the current floor appears to be around 25c.

Whatever the case, though, it's not an investment to make anyone a small fortune - except those, of course, who had a large one tied up in RAMS shares only to see that value disappear like the woollen shirts off their backs.

Chinks in the armour

The first chinks in the armour are appearing in listed property trusts with exposure to global debt markets and to Britain.

GPT told investors at a lunch at Goldman Sachs JBWere's office in Sydney yesterday that its British-based Halverton business was, like its competitors, feeling the pressure of the flagging property sector there. GPT bought Halverton, which oversees properties worth more than $2.2 billion, in July.

Fund managers and brokers said the main question was whether Halverton can raise equity for its planned funds to justify its acquisitions in Britain.

Commercial property values in Britain slipped a further 2.3 per cent in October amid continued uncertainty in financial markets.

The market's darling, Goodman, this week closed its hybrid debt raising $75 million short of its planned $400 million. It was initially planned at 1.9 percentage points above the three-month bank bill rate.

While Goodman does not need the cash in a hurry, it does indicate that debt raisings are not as easy as they were.

Goldmines for sale

South Africa's Harmony Gold has opened a data room to potential joint venture partners on its large Papua New Guinea gold and copper projects, which could attract interest from players such as Barrick Gold, Lihir Gold, Newcrest Mining and Oxiana.

Harmony, which recently sold its gold assets in Western Australia, wants to retain a 50 per cent interest in the projects.

It has begun construction at Hidden Valley, an open pit gold project which will produce 285,000 ounces a year from 2009.

Harmony is also undertaking a pre-feasibility study on the $US1 billion-plus Wafi-Golpu copper-gold project, which is a potential caving operation that could start mining in 2012. It's worth noting Rio Tinto and Newcrest have some of the best block-caving and sub-level caving teams in the world.

Silly bid

Needing to raise cash just to pay advisory fees on a takeover bid isn't exactly a sign of a strong balance sheet.

So it's perhaps not surprising that an independent expert, PriceWaterhouseCoopers, found the hostile scrip tilt by junior explorer Fairstar Resources for its much larger rival, Golden West Resources, was neither fair nor reasonable.

Golden West is targeting more than 200 million tonnes of iron ore resources in the hot midwest region of Western Australia, while Fairstar has some very early stage gold and uranium prospects.

There seems to be little sense in merging the companies - apart from cutting a few head office costs - but they are linked in that Kalgoorlie prospector John Doutch has a significant holding in both.

It remains to be seen whether Golden West's recent defensive move of appointing former BHP iron ore head Geoff Wedlock and raising $36 million to dilute Doutch's holding will work. Fairstar has received acceptances from one-third of Golden West shareholders.

Telstra toes the line

Telstra seems keen, at least for now, to adopt a more diplomatic stance in its dealings with the incoming Labor government.

And for good reason. That's because at least two large brokers - ABN Amro and Goldman Sachs JBWere - believe Labor's plans for an $8 billion national high-speed broadband network will have a positive impact on Telstra.

Stephen Conroy, who is almost certain to be named the new communications minister tomorrow, has slapped a six-month deadline on selecting a builder for the network.

ABN believes the tight timeframe is a positive for Telstra because "it is the only organisation that could commence the project and show good progress quickly".

"This also lessens the likelihood of a regulatory confrontation between Telstra and the new government as this could delay the [network] rollout," analyst Ian Martin said.

But a stumbling block could be be Telstra's likely opposition to Labor's plans for a public-private partnership as it would mean the company would be sharing its most important strategic asset.

Conroy, meanwhile, is already coming under pressure to reform the telecommunications sector. The Competitive Carriers Coalition is calling for structural separation of Telstra or - at the very least - "genuine" operational separation of its businesses like that which has occurred in Britain.

Wait for 2009

Investors might be hoping that Fairfax Media will make positive statements about its profit outlook when it faces shareholders on Friday but Goldman Sachs JBWere reckons this year remains a time of transition for the newspaper publisher.

The stock will keep trading between $4.50 and $5, the broker suggested, as the market waits until its recent takeovers of Rural Press and Southern Cross Broadcasting's talkback radio and TV production assets are digested and the risk of hiccups subsides.

Shares in Fairfax dropped 9c to $4.70 yesterday. But dips in the share price may offer opportunities for patient investors, Goldies reckons.

"Fairfax remains a financial year '09 story, with double-digit earnings growth emerging, underpinned by ongoing synergy benefits," the broker said.

© 2007 Sydney Morning Herald

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