Minister attacks steel reconstruction document

Press, 13 February 1986, Page 8

Minister attacks steel reconstruction document

By

SIMON LOUISSON

in Wellington

The Minister of Finance, Mr Douglas, criticised a New Zealand Steel reconstruction plan document sent out to shareholders on Tuesday. He said he was "extremely disturbed” by the tenor and content of the communication. He also said there had been misleading reports about why the Government was taking an equity position in the company. “The simple fact is that the Government has stood by its legal obligations and has sought to protect the position of all those with an interest in the project,” he said.

It was unfortunate for

shareholders that the value of their shares was less than a third of what it was last year, but the fact remained the directors were still recommending acceptance of the offer as in the best interests of the shareholders.

“In my view there was a real possibility that they would have lost all their equity had the previous arrangements continued,” said Mr Douglas.

The Government’s offer was “generous” given the debt, where it could have sought new shares in the ratio of 11:1 rather than 4:1.

Commenting on the viability of the New Zealand Steel expansion project, Mr Douglas said it

was “flawed” from the start.

That 97 per cent of the cost was financed by loans meant that cost over-runs had crippled the project.

New Zealand Steel’s products were only competitive with overseas competitors if financing costs were ignored. Delays in construction ,■ and cost over-runs had meant more loans had to be raised to fund the interest costs accumulated during construction. Both the Government and the company recognised the problem and this was why the Government had taken over the $ll3B million of debt, said

Mr Douglas. “This would bring the interest charges down to manageable proportions and allow the company to produce at internationally competitive prices,” he said.

Responding to Mr Douglas, the New Zealand Steel directors said they had given their views in the explanatory statement which they considered “full, fair and factual.”

“The reconstruction plan is recommended to shareholders for acceptance and the directors are confident a strong company will result,” they said. “No further comment is considered appropriate.”