There was an important omission from my recent column on Mainzeal as I failed to disclose that I owned 1026 Richina Pacific shares. This non-disclosure was relevant because Mainzeal is 100 per cent owned by Richina.

I forgot about the shareholding because almost no correspondence has been received from Richina since it delisted from the NZX in December 2008.

This raises the issue about the requirement of directors to regularly report to shareholders, even if a company is no longer listed.

Richina Pacific held a special meeting for shareholders on December 15, 2008 at the Ellerslie Events Centre in Auckland. The following proposals were put to the meeting:

* That shareholders approve an amalgamation whereby Richina Pacific be reorganised into four separate divisions, one of which would be Mainzeal

* That shareholders approve the delisting of the company from the NZX.

Chairman John Walker, a New York lawyer, wrote in the notice of meeting that “we consider that shareholders who participate in the amalgamation will be protected by appropriate safeguards for minority interests in the bylaws of the resulting entity”.

An investment statement, which was also included with the 191-page notice of meeting, said a copy of every balance sheet and statement of income and expenditure, including the auditor’s report, would be sent to every person entitled thereto in accordance with the requirements of the Bermuda Companies Act (Richina Pacific had moved its registration to Bermuda).

This implied that a copy of Richina Pacific’s annual report would be sent to all shareholders after the company delisted.

The statement also said that the company’s annual meeting would be held in Auckland each year “for so long as 15 per cent of any class of division shares are held by shareholders with a New Zealand-registered address”.

The two-hour meeting was highly acrimonious but shareholders approved delisting with 88.5 per cent of the votes cast in favour of the motion.

Former Prime Minister Jenny Shipley, a Richina Pacific director, strongly defended the group, particularly Mainzeal. She was chairman of the construction company until its recent collapse.

Richina Pacific hasn’t sent an annual report to this shareholder in recent years, an omission that seems to be totally inconsistent with statements in the company’s 2008 notice of meeting and with the general requirements of all listed and unlisted company directors.

The Cadbury Report, a widely regarded British publication on corporate governance, has this to say about the role of directors; “Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship”.

This statement, including the requirement to report to shareholders, has been endorsed by the Institute of Directors in New Zealand.

Walker, chief executive Richard Yan, Shipley and the other Richina Pacific directors won’t win any communications awards. Shipley reinforced this impression during the week when she released a statement to the Business Herald, through her PR advisor Bill Ralston, which stated; “In all my governance roles I focus on the best interest of the companies and I will continue to do so”. There was no mention of shareholders, or the requirement to communicate with them, in Shipley’s statement.

Richina Pacific hasn’t held an annual meeting in Auckland in recent years because New Zealanders probably own less than 15 per cent of the company and, by definition, it’s an overseas-controlled company. Therefore Mainzeal, which is 100 per cent owned by the Richina group of companies, must also be an overseas-controlled company.

Under Section 19 of the Financial Reporting Act 1993, such companies are required to file audited financial statements annually with the Registrar of Companies and have these accounts available for inspection by the public on the Companies Office website.

The accounts must contain a profit and loss statement, balance sheet, statement of movement in equity, statement of accounting policies, notes to the accounts and an auditor’s report. They must also be signed and dated by at least one director.

Mainzeal’s accounts should be available on the Companies Office’s website but they are not, because the Richina group has an extremely complex structure that enables it to avoid some of its reporting requirements.

It is quite extraordinary both companies have made such a feeble effort to communicate with shareholders and other stakeholders. This reflects poorly on the directors of both companies, with Yan and Shipley also having a long association with the failed construction company.

Richina Pacific spent a huge amount of money on legal and accounting fees in relation to its 2008 amalgamation and delisting proposal, yet the company is reluctant to spend a few dollars sending its annual report to shareholders, lodging its accounts with the Companies Office or maintaining its own website.

Another issue that’s raised its head recently is the ability of the domestic share market to absorb major sell-downs and how share prices perform before and after these placements.

The major sell-downs were; 51.0 per cent of Trade Me by Fairfax; 7.6 per cent of Auckland International Airport by New Zealand Superannuation Fund; 11.1 per cent of Sky TV by Todd Group; 50.3 per cent of Steel & Tube by OneSteel; 23.7 per cent of A2 Corporation by Cliff Cook and Freedom Foods; and 10.2 per cent of Ebos by Python Portfolios.

The Trade Me placement was widely anticipated and the company’s share price fell from $4.27 to $4.05 in the eight trading days preceding the $769 million sell-down. The placement was at $3.81, a 6 per cent discount to the pre-placement price. This discount was consistent with the other companies, with the notable exceptions of A2 and Steel & Tube.

Auckland International Airport’s share price rose from $2.84 to $2.94 in the eight trading days prior to New Zealand Superannuation Fund’s sell-down. The placement was made at $2.76, a 6 per cent discount to the pre-sale price. It’s the only one of the six companies to trade below the sell-down price immediately following the transaction.

Sky TV’s share price rose from $5.12 to $5.36 in the run-up to Todd’s 11.1 per cent sale. The company’s share price struggled to stay above the $5.05 placement price in the days immediately following this event.

The Steel & Tube sell-down was well executed, particularly for purchasers. The company’s share price increased from $2.30 to $2.42 in the eight days preceding the placement but the latter was done at an attractive 15 per cent discount to the previous market close.

Finally, the A2 Corporation sell-down by Cliff Cook and Freedom Foods was poorly executed by the broker. The company’s share price was relatively static in the run-up to the placement but the price has struggled since the offering, even though the $70 million sale was at a 22 per cent discount. This was partly influenced by a placement of new shares at the same time.

Sell-downs can be attractive but A2 has demonstrated that large discounts do not guarantee an immediate capital gain for participants.

 Major NZX sell downs; Steel & Tube offered the best opportunity



Per cent





A2 Corporation







Auckland Int. Airport














Sky TV







Steel & Tube







Trade Me







Disclosure of interest: Milford Asset Management holds shares in Auckland International Airport, Sky TV, Steel & Tube, Trade Me, Ebos, A2 Corporation on behalf of clients.  Milford Asset Management participated in all the sell downs except Auckland International Airport.

Brian Gaynor

Portfolio Manager