Small shareholders get the right offer

WE cannot be certain that Qantas chief pilot Geoff Dixon and QBE boss Frank O’Halloran have Business News specially couriered to their Sydney headquarters, but we might be forgiven for whimsically supposing they read our column of October 11.

It amounted to a diatribe against companies handing fat cat institutions billions of dollars in shares at a discount, while freezing out their ordinary shareholders, who rarely get a sniff by way of “rights” issues.

Insurance group QBE was first to respond. The company’s $550 million institutional placing at $5.50 a share is already bedded down. But this week a prospectus will be dropping into the post boxes of all private shareholders offering them a one-for-five “rights” issue on identical terms.

The QBE share price, which has been as high as $12 this year, collapsed to $3.28 on news that QBE had $250 million of exposure to the New York terror attack. Gradually it dawned on the market that O’Halloran and his well regarded management team will be in the box seat to take advantage of upcoming big hoists in insurance premiums. Their cash call was stampeded and the QBE price has since shot up to $6.90. It was a similar story at Qantas. Some dumb fund managers hammered the shares down to $2.36 in March at the height of the “air wars”. It did not seem to occur to them that badly injured competitors might be carried off right and left. Qantas now dominates the domestic skies.

As virtually the only airline in the world currently buying planes, it also can get a 40 per cent discount on 17 new Boeing 737-800 or Airbus 320 jets – probably with luncheon vouchers thrown in. Qantas is raising $600 million to help pay for the aircraft. Once again, small shareholders are being given the chance to participate in this placing on pro rata terms, paying $3.05 a share – but only up to $3000 worth, because regulators believe any more might go to their heads.

British Airways is skint and cannot afford to take up the rights on its 25 per cent stake. Qantas shares have soared to $3.65, with many foreigners among the buyers. Salomon Smith Barney thinks they might see $4.95 next year.

Tough times not tough enough for some

MOST market economists, and many financial journalists, are only happy when they are miserable.

CommSec, the on-line broking arm of the Commonwealth Bank, scans 19 Australian newspapers to calculate its Gloom Gauge based on the number of times “recession” gets mentioned. In September, the score rose to 802 from 292 the previous month, although the R word was mainly used in the context of a US slump.

The GG hit its peak of 859 back in March when a number of experts were determined to see an Australian recession. “We are already in it,” crowed Dun & Bradstreet man Duncan Ironmonger at the time. “I think unemployment will rise to 7.8 per cent by Christmas,” he opined.

The economy has continued to waddle ahead, confounding not only Ironmonger, but long-term doom peddlers like Dr Peter Brain, head honcho at the National Institute of Economic and Industrial Research in Melbourne. Brain made the headlines in early 1999 by predicting that we would suffer zero growth this year and 10 per cent unemployment, putting a million people in the dole queue by 2002.

Will the terrorist-induced recession in the US get these characters off the hook? Well, not Brain, he is doomed.

No way is the Australian economy soon to slip into zero growth, and he can whistle for his one million unemployed.

The Treasury says 3 per cent is in the bag for the current year, and the housing boom looks like lasting deep into next year.

Tourism is hard hit, and we cannot afford to see more incompetently managed large companies fall over, but the forecast is not all black clouds.

Mr Ironmonger says “the long-term future of the Australian economy is now largely depen-dent on how well the US economy fares and the global impact of the war on terrorism.”

I think we knew that.ß

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