
	Advanced Search

A Report on Certain Statements made in Respect of Air New Zealand Limited in September 2001

C EVENTS OF SEPTEMBER 2001

7 AIR NZ

7.1 The Board of Air NZ comprised a number of directors, some of whom were appointed by the major shareholders, BIL and SIA, and some of whom were independent directors who appear to have formed a committee to consider the recapitalisation options given the conflict that the SIA directors had (as they were proposing an option). This occurred in May 2001. The independent directors included the Acting Chairman, Dr Farmer. In early September Mr Waller, a senior partner of PricewaterhouseCoopers in Auckland, and Mr France, an independent chartered accountant and formerly a partner of PricewaterhouseCoopers, were engaged to advise Air NZ. As Air NZ's strategies for the acquisition of the Virgin Blue airline and subsequently the sale of Ansett to Qantas failed, Air NZ negotiated a recapitalisation package that was announced with its financial results on 13 September. Under this agreement BIL and SIA each agreed to contribute a further $150 million in capital, and the Government agreed to act as a lender of last resort for $550 million. The package was conditional upon due diligence by each of BIL, SIA and the Crown, as well as consent from the company's bankers.

8 THE GOVERNMENT

The role of the Government

8.1 By the beginning of September 2001 Air NZ was considering options for recapitalisation. From the point of view of the Government the Air NZ issue was being managed at four levels.

Mr Cameron, of the investment banking firm Cameron and Co., was appointed negotiator and worked with a team of experts and Treasury officials with Murdo Beattie as part of this team ("the crown negotiating team"). The crown negotiating team acted on behalf of the Government in negotiations with Air NZ and its major shareholders. Mr Cameron reported directly to Dr Cullen or his Office. This followed on from Cameron & Co.'s initial instructions from Treasury to complete a preliminary financial analysis of Air NZ.
A group of departmental heads ("the chief executives group"), co-ordinated by Dr Bollard, Secretary to the Treasury, met to exchange information. The crown negotiating team reported to the chief executives' group from time to time.
Treasury itself, as the Department most directly involved, prepared advice and gathered information, both as a resource for Mr Cameron and for the benefit of the Government. The Commission was told these officials were advised of the need to maintain confidentiality.
At the highest level, Cabinet formed an Ad Hoc Ministerial Committee for the purposes of the Air NZ matter. Its members were the Prime Minister, Mr Anderton, Dr Cullen, Mr Mallard, Mr Swain, Mr Gosche, and Mr Burton. Dr Cullen was the lead Minister on Air NZ. We are informed that the Prime Minister was not routinely briefed by Treasury or Mr Cameron, but was kept informed periodically and on an "as necessary" basis by Dr Cullen and her own advisers, especially Dr Prebble and Ms Simpson.

Period following 13 September

8.2 The package of 13 September came to be viewed by the market as being insufficient to meet Air NZ's capital needs, as the implications of the terrorist attacks of 11 September for the global aviation industry became more evident. The parties were undertaking due diligence, as agreed under the terms of the package. There were some concerns that the major shareholders would use the due diligence process to opt out of the package.

8.3 It is clear, however, that the position of the company was increasingly seen as precarious. In the week beginning 17 September the media began to speculate on the possibility of statutory management, liquidation or receivership. Such speculation was strongly fuelled by comments made during that week by Dr Cullen or his spokespersons, and to a lesser extent the Prime Minister, which conveyed the idea that statutory management was a real possibility. On Thursday 20 September Dr Cullen told Morning Report, in response to a question about the Government taking an equity stake in Air NZ:

"I think there are very serious risks for the Government because then we're signing up to parts of the liabilities of Air New Zealand. I doubt you are going to see the Government rushing in with a large amount of equity to rescue Air New Zealand. There are other processes which can be gone through which can continue an Air New Zealand operation in being."

8.4 For his part Mr Cameron was concerned that Air NZ might lose the support of one or more of its bankers, which could have resulted in statutory management. Treasury had already researched statutory management as an option. The chief executives group met on the evening of Thursday 20 September. Mr Cameron and various officials attended the meeting. The following day the Department of the Prime Minister and Cabinet prepared a briefing paper on statutory management, and this was given to the Prime Minister. The Prime Minister has said to the Commission:

"I did not read the briefing paper on statutory management prepared by my Department on 21 September 2001, at the time. The introductory paragraph made it plain that it dealt primarily with the procedure to be followed in order to place Air NZ in statutory management. There was no need for me to be familiar with the details of the process at that time."

8.5 By Friday 21 September Air NZ's Board, following advice from Mr Waller and Mr France, had concluded that Air NZ required an injection of equity to produce shareholder funds of $1 billion. Further, without a commitment by the major shareholders to provide additional capital or the Crown either committing to underwrite an equity issue or contribute capital the directors would be forced to ask for the appointment of a statutory manager.

Weekend of 22 and 23 September

8.6 On the evening of Friday 21 September, the position appeared bleak. Dr Farmer, Mr Waller and Mr France left the meeting of the Board of Air NZ to speak to Mr Cameron. They told him that the independent directors had concluded that they could not continue to allow the business to operate on its existing basis after Sunday night without Government support for Air NZ. Mr Cameron told the Air NZ team that the Crown was very reluctant to take equity without resolution of the potential liability for the debts of Ansett.

8.7 On 22 September Messrs Waller and France, independent directors of Air NZ, Treasury officials, Mr Cameron and Mr Beattie attended a meeting that was held in the Wellington offices of Cameron & Co. The importance of reaching settlement with Ansett administrators was discussed.

8.8 Dr Farmer, Mr France, Mr Waller and Mr Galbraith QC flew to Melbourne early on the morning of Sunday 23 September and met the Ansett administrators and their legal advisor. During the course of Sunday they negotiated a settlement in principle. However, on Monday 24 September the major shareholders still refused to vary the arrangements agreed in the 13 September package, and specifically refused to fund the Ansett settlement by contribution of capital without first completing due diligence. The Crown, represented by Treasury officials, was aware of the possibility of a settlement with the Ansett administrator, prior to 24 September when Mr Cameron circulated a draft term sheet.

8.9 On Sunday 23 September Mr Cameron began to formulate a proposal for the Crown to take an equity stake in Air NZ. Over the course of the weekend and Monday Mr Cameron spoke several times to Dr Cullen, who was at his home in Napier.

8.10 The Prime Minister, who had spent the weekend in Auckland, did not return to Wellington until Tuesday morning. In the course of Sunday 23 and Monday 24 September the Prime Minister gave several interviews in which she referred to statutory management as a viable option. On Monday 24 September the price of shares in Air NZ fell further. The A and B shares, which had opened the month at $0.90 and $1.06 respectively, closed on 24 September after heavy trading at $0.18 and $0.155 respectively (their lowest levels ever). This was a drop of 38% for the A shares and 40% for the B shares from their Friday closing price. The New Zealand Herald of 25 September attributed that drop to the Prime Minister's comments.

8.11 By Monday evening the Cameron proposal had been expanded into a draft "term sheet" setting out the terms upon which the Crown was prepared, in the first instance, to fund the Ansett settlement by way of a loan to Air NZ, and later, to take an equity stake in Air NZ. It was distributed to Treasury and Dr Cullen's Office. From Dr Cullen's Office it was sent to the Office of the Prime Minister, and faxed from there to the Prime Minister at her home in Auckland and to Dr Prebble on holiday in Russell. We understand this was the first the Prime Minster knew of the proposal. A meeting of the Ad Hoc Ministerial Committee was scheduled for 10.00 am on Tuesday 25 September. In advance of this meeting Treasury prepared for Dr Cullen a briefing paper that discussed three options: statutory management, Crown-led recapitalisation with the other major shareholders, or recapitalisation by the Crown alone. The Cameron proposal, by contrast, developed only the last of these options.

Meeting of the Ad Hoc Ministerial Committee

8.12 The Ad Hoc Ministerial Committee met at 10.00 am on Tuesday 25 September in the Prime Minister's office. Several participants attended by telephone, including Dr Prebble. Before the meeting Dr Prebble dictated a note over the telephone to his staff in Wellington. The note was intended for the Prime Minister. It was delivered to her at the meeting but was not discussed. The Prime Minister had left Auckland on an 8.30 am flight and went into the meeting directly on her arrival at her office. The Prime Minister has told the Commission that she did not read Dr Prebble's note at the time. It included a comment that if and when a recapitalisation package was in place statements by the Government should be directed towards support of Air NZ.

8.13 At the meeting of the Ad Hoc Ministerial Committee Mr Cameron spoke to a document prepared by him on 24 September entitled "Air New Zealand Current Situation and Options". It recorded that there had been two major developments in relation to Air NZ. The first was that the independent directors had concluded that the September 13 package would not ensure the viability of the company, which required immediate equity support to continue trading. The second was that "the Chairman of Air New Zealand and the company's advisors have negotiated a Heads of Agreement with the Voluntary Administrator (VA) for Ansett". The document then addressed the "stark choices" in relation to Air NZ. One was for the Government to finance the Ansett settlement and provide the independent directors with comfort to continue trading while a new recapitalisation plan was developed. Alternatively, if the government was unable to assist, "the company will commence its path towards Statutory Management or liquidation with the likelihood that this course of action will be irreversible". The document then discussed the alternatives of Government recapitalisation and statutory management in more detail.

8.14 The meeting discussed the amount of capital required, rather than the number of shares that the Crown would acquire. It was obvious from the level of capital required that the Crown would acquire a majority holding. There was discussion of the proposed settlement in principle with the Ansett administrator. The meeting was told of the refusal by the major shareholders to fund the settlement. Advice was given that the settlement could be lost without an immediate commitment by the Crown. It was suggested that an application could be made the following day (Wednesday) to the Australian Federal Court for approval of the settlement, but in the end court approval took a further two weeks.

8.15 The outcome of the meeting was that the Committee agreed "negotiation parameters" for the Crown negotiating team whereby the Crown might take an equity stake in Air NZ. That entailed a proposal that the Government fund the Ansett settlement by way of convertible debt of A$150 million and take a share placement in Air NZ of up to $700 million. The Ad Hoc Ministerial Committee accordingly approved the proposal to the major shareholders outlined in Mr Cameron's draft term sheet with some variations.

8.16 We have been told the mood of the meeting was cautious. Mr Cameron emphasised that several steps were required before the proposal could be made to work. According to Dr Prebble the meeting represented progress, but not a watershed: there were still a number of matters to be worked through. The Commission is of the view this was a very important meeting because the Crown, albeit subject to conditions, agreed that it would provide equity to Air NZ. Mr Cameron himself thought the chances of success were 50/50 and cautioned against relying on any aspect of the proposal as a certainty. Nonetheless Mr Cameron thought that his proposal was an important initiative and that the information contained in it was price sensitive. It was agreed at this meeting that there was to be no public announcement about the prospect of a new transaction until the matters for negotiation were settled.

8.17 The Prime Minister in evidence to the Commission has said:

"I had no reason to form a view as to whether or not the particular information referred to was price sensitive at the time I received it, and have not formed any view since then."

The Commission accepts the Prime Minister's evidence. However, the Commission is of the view that the information was price sensitive. The brokers interviewed generally regarded each of these matters as price sensitive, although they were not unanimous in their views. As noted above, Mr Cameron was also of the view that the information was price sensitive.

9 THE PRIME MINISTER

Conversation between the Prime Minister and Dr Turkington

9.1 At 7.30 am on Tuesday 25 September Dr Turkington of the broking firm Forsyth Barr Frater Williams Limited left a message on the Prime Minister's answer-phone saying that he wished to discuss Air NZ. Dr Turkington knows the Prime Minister through a connection with the Auckland Philharmonia. The Prime Minister returned his call on her way to the Beehive, before the 10am meeting, at approximately 9.45am. He took the call in his firm's broking room.

9.2 There followed a conversation in which Dr Turkington urged the Government to consider a rights issue as a means of raising capital for Air NZ. In her turn the Prime Minister asked Dr Turkington what the market reaction would be to participation by the Government as a new equity funder of Air NZ, on terms that it would sell down its shareholding to the public once the viability of the airline had been restored. Dr Turkington told the Commission in evidence that this was put to him on a purely hypothetical basis. He said:

"Having initiated contact, I took the major part in the conversation and the Prime Minister for the most part merely listened. The prospect of the Government taking an equity stake in Air New Zealand was obviously not new. I was not given any indication at all on any aspect, either of the Government's stance with the airline, or any indication of the view the Government took about the financial health of the airline. In short, [the Prime Minister] made no disclosures to me and I did not come away from the conversation any wiser about any aspect of the Air New Zealand matter than I had been before it."

9.3 Dr Turkington later reported this conversation to Mr Edgar, chairman of the Forsyth Barr Group Limited, and spoke on the same day to Mr Cameron, but to no one else. Dr Turkington did not discuss the full content of his conversation with the Prime Minister with Mr Cameron. Dr Turkington only told Mr Cameron that the conversation had occurred.

9.4 Mr Cameron says that he may have made a passing reference, in a conversation with Dr Farmer, Mr Waller and Mr France, to the fact that the Prime Minister had been contacted by a broker or brokers on the prospects for a rights issue.

Prime Minister's interview with TV One

9.5 The Ad Hoc Ministerial Committee had met at 10.00 am. At approximately midday the Prime Minister spoke at a conference at the Quality Inn Hotel. As she left the hotel some 30 minutes later she stopped to give a brief interview to Ms Robyn Janes, a journalist with TVNZ. This had been informally arranged through Mr Lewis the press secretary accompanying the Prime Minister on her arrival at the conference. Mr Lewis told Ms Janes that the Prime Minister was unlikely to talk about Air NZ. Ms Janes interpreted this to mean that there was nothing new to add that day about Air NZ.

9.6 Mr Vernon Small of The New Zealand Herald was part of the group that formed around the Prime Minster for the interview. Ms Janes had earlier been asked by a TVNZ producer in Auckland to ask the Prime Minister a question about "mum and dad" shareholders in Air NZ. Ms Janes first asked, "Air NZ - anything to report today?", to which the Prime Minister responded, "Nothing to report". Ms Janes then asked, "What's your recommendation to mum and dad shareholders at the moment?" The Prime Minister replied, "I'd recommend they hang on to them because I am absolutely convinced that Air NZ has a viable future". Mr Small, who thought that this statement was a news scoop, asked two further questions about Air NZ. In one Mr Small asked: "When you say people should hold on to their shares, are you saying that it won't go into statutory management, or implying that it could trade out if it did go that way?" To this the Prime Minister replied: "I think that whatever the path that is chosen, Air NZ has a very viable future as a company". The full text of the interview is annexed as Appendix B.

9.7 The Prime Minister's statement that shareholders in Air NZ should hang on to their shares was carried that evening on TV One News at 6.00 pm and prominently reported in The New Zealand Herald the following day. Neither report included the Prime Minister's comment to the first question "nothing to report" or to the later question about statutory management. Instead, as we describe in more detail below, the Prime Minister's statement in relation to mum and dad shareholders was put in a somewhat different context from that given by the Prime Minister. This included, in the case of The New Zealand Herald, that the Office of the Prime Minister had tested the market reaction to increasing the Government's commitment to the bailout.

Prime Minister's Evidence

9.8 We set out in this paragraph a summary of the Prime Minister's evidence as presented to the Commission in respect of statements made by her:

The Prime Minister had no intention, in responding to the question put by Ms Janes, to advise or encourage any person to buy or sell shares in Air NZ;
She did not intend to influence trading in the shares of Air NZ;
She did not draw on specific information in recommending that shareholders should hang on to their shares, as she did not consider that she was making a formal recommendation;
As Prime Minister, her objective was to convey the confidence of the Government that the national airline had a positive future, and this was the same response that she had given to numerous questions relating to Air NZ over the preceding days;
She considered that there was no connection between the matters discussed earlier that morning at the Ad Hoc Ministerial Committee meeting and her comment in respect of the situation of "mum and dad" shareholders. Her initial response was that there was nothing to report, which she considered made it clear that in her view nothing had changed since earlier interviews;
Other than the advice contained in Dr Prebble's note, which she did not read at the time, she received no advice as to the nature of public comments about Air NZ that she might appropriately make, or that she should not make;
To the best of her recollection she had not, on the morning of 25 September, noted the suggestion in The New Zealand Herald that the drop in share price the previous day was caused by her comments on statutory management;
The Prime Minister maintains that her comment to shareholders was appropriate in the circumstances. She considers that had she avoided answering the question the media would almost certainly have accused her of having no confidence in Air NZ.

9.9 In her evidence to the Commission the Prime Minister has emphasised that her principle focus was on the airline business.

9.10 The Commission considers from the Prime Minister's statements and her evidence that she did not draw a distinction between the survival of the airline business and the survival of Air NZ as a public company.

Trading halt: Wednesday 26 September

9.11 The NZSE asked Air NZ to clarify the Prime Minister's statement as reported. Pending clarification, the NZSE imposed a halt on trading in the shares of Air NZ that took effect before the market opened on 26 September. Air NZ later issued a statement saying that it considered the media had made more of the Prime Minister's comments than was warranted. The halt was lifted at 2.12pm following distribution of the Air NZ statement. A standard 15 minute halt was then imposed at 2.36pm to allow distribution of the MSP's statement regarding the resumption of trading. Trading closed at the normal time of 4.00pm. Trading was limited to a total of 1 hour 33 minutes instead of the usual seven hours. In that time 3,641,441 A shares and 6,012,519 B shares were traded. The shares closed at $0.34 (A shares) and $0.30 (B shares). On Thursday 27 September both classes closed at $0.40. Closing prices on Monday 24 and Tuesday 25 September respectively were $0.18 and $0.27 (A shares), and $0.155 and $0.25 (B shares).

10 MR TERRY

Mr Terry's Statements on 27 September

10.1 Mr Greg Terry is the chief executive officer of BIL and was a nominee of BIL on the Board of Air NZ until his resignation on 3 October 2001. At 5.00 pm on Tuesday 25 September Mr Terry attended by telephone a meeting of the Board. At that meeting the independent directors informed the Board that there was now a reasonable chance that a recapitalisation would be put in place. Mr Terry advised the Board that on Thursday 27 September BIL would be releasing its annual results, and confirmed that there would be no comment on current discussions or proposals regarding Air NZ.

10.2 In Singapore on Thursday 27 September Mr Terry spoke at a media conference to announce the financial results of BIL. He was reported in the media as having said in relation to the price of Air NZ shares: "I would have thought that at 30 [cents] it could bounce to 60 fairly quickly if there was an announcement that it will continue and it will continue with full support". This statement was made in response to a question asking what value BIL had placed on its stake in Air NZ on a per share basis. The relevant extract from a transcript of Mr Terry's remarks is annexed as Appendix C.

10.3 Mr Terry's remarks were reported in New Zealand on Friday 28 September. Before the market opened the NZSE imposed a trading halt on Air NZ shares, and subsequently the shares were suspended by the MSP at the request of Air NZ until a comprehensive announcement about the future of the company could be made. The MSP's initial suspension was until the close of business on Monday, 1 October. The Panel imposed a further suspension, at the request of Air NZ, from close of business 1 October until Air NZ "makes any further announcement". The company made a further announcement on 4 October and the MSP lifted its suspension at 2pm.

Mr Terry's Evidence

10.4 We set out in this paragraph a summary of Mr Terry's evidence as presented to the Commission:

Mr Terry notes that as a shareholder appointee on the Air NZ Board, he was not privy to detailed information that was provided to the independent directors on the negotiations that were taking place with the NZ Government. Information provided to him was limited;
Mr Terry says that he was not talking up the shares, but endeavouring to give a frank answer to a question regarding BIL's balance sheet treatment of its interest in Air NZ;
He did no more than respond to a question regarding the difference between the BIL carrying value and the then current market value by illustrating a circumstance in which, in the view of BIL, that gap could narrow;
The answer was intended to do no more than illustrate what might happen should certain circumstances occur, in order to illustrate why, in Mr Terry's view, the shares should not be written down from their book value of 65 cents to 30 cents;
The statement was not made in reliance on any inside information;
Mr Terry says that he did not have, and did not represent himself as having, any inside information on which he relied or which in any way influenced him in making the statement. The BIL meeting at which the media conference was held was attended by a number of representatives from BIL's banks and financial institutions which had provided funding to the company. Their presence required some answer from Mr Terry to questions directed at the value of a significant BIL asset;
Mr Terry says it was important that an answer to these questions should be given as negative inferences could have been drawn were he to have declined to answer the questions.

11 TRADING IN THE SHARES OF AIR NZ IN THE WEEK 24-28 SEPTEMBER

11.1 For some months institutions had been selling down holdings in Air NZ. Brokers rated Air NZ negatively. During the week beginning Monday 24 September most buyers were retail investors. They were certainly attracted by the apparent cheapness of the stock, and may also have been buying out of a sense of patriotism and loyalty. Parcels traded tended to be modest in terms of value. According to brokers interviewed, the concept of statutory management was probably neither well understood by, nor of particular concern to, many retail investors, although more sophisticated retail investors were concerned by the discussion of statutory management. Many retail buyers were individuals who either had never previously invested in the market or had not traded for some time. Such was the trend of buying by new or hitherto dormant clients that some broking firms insisted on payment before transacting an order to buy Air NZ shares.

11.2 After closing at a record low on Monday 24 September shares in Air NZ rallied on the morning of 25 September, before the Prime Minister was interviewed and well before her comments were reported. Annexed to this report as Appendix D are graphs of Monday 24, Tuesday 25 and Wednesday 26 September, showing the intra-day trading in the shares in Air NZ by volume and price. On Tuesday 25 September, trading in the A shares opened at $0.22, up 4c from the closing price the day before, rose to $0.25 by mid-morning and closed at $0.27. Trading in the B shares opened at $0.19, up 3.5c from the closing price the day before, and traded for most of the day in the range of $0.22 - $0.24 before closing at $0.25. On Wednesday 26 September, both A and B shares opened markedly higher, at $0.35 and $0.30, although the market did not open on time. The A shares initially dropped but recovered to close at $0.34. The B Shares initially rose sharply from the opening price to $0.34, before dropping back to close at $0.30.

11.3 It is clear that the price of Air NZ shares had started to rise on Tuesday 25 September from their lowest levels on Monday well before the Prime Minister's remarks were made to TV One News and The New Zealand Herald, let alone broadcast or reported. Whether the price would have continued to rise as it did without the Prime Minister's remarks being reported, and the trading halt imposed, is unknown.

11.4 The Commission interviewed a number of brokers. Some brokers were selected because of their reported comments in the media. Other brokers were selected to ensure the Commission received evidence from brokers who dealt with retail investors and those who dealt with institutional investors. The unanimous impression of these brokers is that retail investors took encouragement from the Prime Minister's remarks, which were seen as a "marvellous signal", a "positive sign", a "strong signal". According to some brokers the phones rang "red hot" after the Prime Minister's statement on Tuesday 25 September was reported. For the month of September 2001 trading on Wednesday 26 September was the sixth heaviest day of trading for A shares and the fifth heaviest day for B shares. Although the trading halt, which was lifted at 2.51 pm, prevented trading in Air NZ shares for most of the day, brokers continued to take orders during the halt, in line with usual practice, and these were then matched when the halt was lifted.

11.5 For the purposes of comparison we set out daily volumes of trading in the weeks beginning 17 and 24 September 2001:

A Shares B Shares

September 17 3,493,777 4,191,537

18 3,323,605& 5,167,957

19 2,991,779 4,949,497

20 3,127,873 4,000,485

21 3,049,268 7,882,787

24 5,470,768 11,229,694

25 6,191,661 23,900,657

26 3,641,441 6,012,519

27 4,139,084 6,593,364

28 Trading halted, quotation suspended.

11.6 The figure of 23,900,657 in the B shares on Tuesday 25 September includes a single trade of 12.75 million shares between two funds in New York under the management of the same funds manager. It is difficult to draw any conclusion from volumes of trading in the shares of Air NZ on the two days following the report of the Prime Minister's remarks made on Tuesday 25 September. On Wednesday 26 and Thursday 27 September volume of trading in the A shares was consistent with trading in the previous week. On 26 and 27 September volume of trading in the B shares was towards the top end of the range of trading in the previous week, but no more.

11.7 Some evidence of the strength of retail buying is found in the following analysis provided by ABN Amro Craigs Ltd, a retail broker. The table lists the number of trades, whether buy or sell orders, effected on behalf of clients by that firm in Air NZ shares in the period 21-27 September 2001. The inference is that larger shareholders were selling shares in Air NZ in this period, and that smaller shareholders were buying, as the number of "sells" was smaller than the number of "buys".

A Shares B Shares

Buys Sells Buys Sells

September 21 35 26 33 19

24 43 25 31 33

25 95 38 154 93

26 54 27 112 35

27 64 40 21 13

11.8 At the close of trading on Thursday 27 September both A and B shares stood at $0.40, an increase on the closing prices from Monday 24 September of 122% for the A shares and 150% for the B shares.

11.9 Some brokers interviewed thought that the trading halt imposed on Wednesday 26 September ought not to have been lifted until the recapitalisation proposal had been clarified. A comparison was drawn with the Australian Stock Exchange where the shares were suspended on Thursday 13 September and remained suspended until Friday 19 October. One broker described the trading halt as a "pressure cooker", which intensified interest and speculation. Another thought the speculative aspect was "overwhelming" at the time, and that there was not a strong argument for making a market in the shares of Air NZ.

11.10 A number of the brokers said it was not an unusual phenomenon for retail investors to come into the market as they did with Air NZ. This had happened with other shares when there had been a dramatic fall in value over a relatively short period of time. Many of the brokers said however that September 2001 was a somewhat exceptional month in terms of the amount of publicity that surrounded Air NZ. In their experience they had not seen as much comment and speculation as there was about the prospects of a company. In their opinion this undoubtedly would have fuelled the interest of the retail investor. The records of Computershare Registry Services Limited (the share registry for Air NZ) reflect this. As at 1 December 2000, Air NZ had a total of 40,453 holders of A and B shares. As at 8 November 2001, it had a total of 50,136. This represents an increase of almost 24% in shareholder numbers over the period.

11.11 The Commission asked the NZSE for its views on the usefulness of trading halts and suspension, which we summarise here. The NZSE considers that as long as the market is uniformly informed (or uniformly uninformed) about matters that have not yet occurred - as opposed to matters that have already occurred - the market should be allowed to trade unless quotation should be suspended under the Listing Rules. Denying security holders a market on which to sell their securities, and investors a market on which to buy, removes a right and freedom. It should be done only sparingly and with good justification. Increasingly there are opportunities for the securities of listed issuers to be traded off-market, or in non-regulated markets. Halting trading for other than short periods can encourage development of these alternative non-regulated markets. Both the NZSE and Air NZ consider that the decisions to lift the trading halts were correct. The NZSE believes that it is supported by a majority of brokers in this respect.

PREV | CONTENTS | NEXT