Tongues Wag About Nab Taking Another Big Hit

Sydney Morning Herald

Friday September 12, 2008

Edited by DANNY JOHN

The bank confidently denies the need for another write-down, but the talk persists.

SUGGESTIONS that National Australia Bank may have to take another major write-down because of its exposure to complex corporate securities just won't go away, despite the bank's confident denials.

Broking firm Citigroup has yet to be convinced NAB's investments in such instruments - amounting to $1.6 billion out of wide-ranging asset portfolio of $4.5 billion - are as safe as they appear, and is predicting NAB could take another hit of between $500 million and $1 billion.

That would be a mini-disaster, coming so soon after NAB's $830 million write-down in July to cover a dramatic fall in the value of its holdings in US mortgage-backed securities.

In its latest note to clients on the issue yesterday, Citi said the deteriorating US and European economies will hit the very companies to which NAB has its indirect exposure.

It also claimed the bank has told investors the market value of its investments may be as little as half of their face value, but because the assets are still performing they are not impaired and therefore no further provision is required.

As far as the market is concerned, that's going to make for an interesting couple of weeks. NAB will close the books on its 2008 financial year on September 30 - a deadline for disclosure if there ever was one.

It also helps explain the near 5 per cent caning that NAB's shares received yesterday, falling $1.20 to $23.88.

Tampakan twist

The battle for control of Indophil Resources' 34 per cent stake in the Tampakan deposit in the Philippines has had more twists and turns than a good spy novel.

The latest chapter involves Indophil's Philippines partner, Alsons, agreeing to bid about $540 million for Indophil's interest in Tampakan, rather than the company as a whole.

Last week Lion Selection sold an 18 per cent stake in Indophil to its Tampakan partner, Xstrata, at a discount a week after Xstrata abandoned a bid for Indophil.

That seemed to stymie a bid for Indophil by a consortium led by the Hong Kong bank Crosby Capital. But Alsons, which had been part of the Crosby consortium, has found a neat way to get around Xstrata's blocking stake. With Crosby's support, it has agreed to pay the equivalent value of the consortium bid - $1.28 a share - to purchase Indophil's stake in Tampakan.

The sale will require a shareholder vote but, importantly, only 50 per cent of investors will need to approve the deal. That means Xstrata is unable to block the deal by itself.

After selling the Tampakan interest, Indophil will be left with early-stage exploration assets in the Philippines and plenty of cash - which it plans to return to shareholders "in the most expeditious manner".

Slimmer pickings

If figures from its business partner are any guide, James Packer's Crown Ltd has been hit by a fall in the amount of cash gambled at its flagship Macau casino in August.

The company that provides its VIP gamblers, A-Max Holdings, says the value of gambling chip turnover was down 17.5 per cent on the previous month.

The rolling chip turnover, a key measure of casino profitability, was down to $HK33 billion ($5.3 billion) a month from $HK40 billion the month before.

It is the lowest turnover since A-Max was established late last year, and well below analysts' estimates of average monthly turnover of $HK49 billion.

A-Max blamed the fall on Chinese visa restrictions which began in June for visitors from Guangdong province travelling to Macau. Turnover was also hit by the Beijing Olympics, it said.

A-Max is important to Crown as the VIP gamblers it brings in to Crown Macau provide more than three-quarters of its gambling turnover. Crown's shares closed 55c down yesterday at $8.81.

Payments on hold

Investors in Allco HIT's Strategic Finance business will have to wear some short-term financial pain before the subsidiary's planned sale to a consortium of investors, including its original owners.

Yesterday the New Zealand finance company suspended interest payments on its debentures, subordinated notes and deposits, the latest of which was due next Monday, as well as its October dividend on its preference shares.

The decision was taken in light of the capital revamp of the company that will result from its sale. Strategic, caught up in the economic whirlwind that has caused many NZ finance companies to fail, intends to pay the outstanding amounts once the sale is complete.

xchange@smh.com.au

© 2008 Sydney Morning Herald

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