Investors take chance to ditch NAB bond offer

THE fall-out from National Australia Bank's $830 million write-down of its investments in US mortgage-backed securities has claimed the bulk of its latest fund-raising exercise.

With the investment community expressing dismay at the timing of Friday's announcement a day after an $850 million bond issue, investors took their revenge on the bank with 70 per cent pulling their commitment to the capital-generating move.

Only a third of its backers stayed with the issue, which consisted of $650 million of fixed-rate debt and $200 million of floating-rate bonds due to mature in three years.

The rethink came about after NAB offered investors an "exit option" as an expression of goodwill.

A NAB spokesman said last night the bank felt that it had made appropriate disclosures about its exposures at its half-year results in May and later in a separate ASX announcement.

While the bond issue is small in regards to its funding needs, NAB will no doubt be concerned about the knock-on effect of the retreat by investors given that it goes to the heart of the argument about trust and reputation.

Last night's developments came after a flurry of negative reports from analysts in the wake of Friday's briefing, which were probably best summed up by Macquarie Equities' response.

Having upgraded the stock only last week, the broking team was stark in its judgment: "We were wrong" - accompanied by a reversal in recommendation to "underperform".

Harsh as some of the brokers' responses were, NAB could at least take some comfort from the view expressed by a few that it had copped the latest losses on the chin while not taking the axe to the second half dividend.

Nonetheless, analysts like Ross Brown at Deutsche Bank were disappointed about the provisions coming so soon after the first tranche in May when NAB said it had taken a "conservative" approach to such charges.

And while Deutsche reckons the exposures to collaterised debt obligations made up of mortgage-backed securities are now ring-fenced, its remains concerned about possible provisions on NAB's $4.5 billion worth of corporate securities.

These are less risky than the CDO portfolio but Deutsche still reckons a 10 per cent hit - $450 million - is possible and has factored that into its view as to how well NAB's shares may fare over the next 12 months.

The investment bank has cut its share price target from $37 to $33 which still requires a leap of faith given the weaker outlook for earnings in 2009.

Stalled again

With the current roller-coaster ride on the market, it is safe to assume that only the bravest and most desperate would seek to sell new shares. Which obviously does not apply to carsales.com.au, the automotive site 49 per cent owned by PBL Media.

Having just posted a 58 per cent rise in earnings to 8.2c a share for the year to June, on $71.9 million in sales, the site's managing director, Greg Roebuck, hinted to Xchange that the long-touted listing of the company may be postponed yet again.

Australia's biggest car site was first expected to float in May or June, then the timing was pushed out to September or October. Yesterday, Roebuck said the company would be looking for a market rebound and three months of lower volatility before going ahead.

With a lot of the work done already, the site could be listed very quickly. He said this calendar year was "still achievable", depending on market conditions, but was quick to concede that it sounded a tad optimistic given current declines.

On the earnings front, he said carsales.com.au had yet to feel a downturn from the slowing economy and high petrol prices. The site had benefited from the continuing migration of ads to the internet, the demand for used and smaller vehicles and companies filling up their corporate car parks with luxury brands before the end of the financial year.

Copping out of copper

At a time when most zinc miners are more than happy to add higher-margin copper production, Perilya has decided to put its Mount Oxide copper project up for sale.

The struggling Broken Hill miner said yesterday it had already received "a number of expressions of interest" from local and overseas companies for the 200,000-tonne copper resource, near Mount Isa.

The obvious buyer would be its neighbour Aditya Birla, but its management has not exactly inspired the confidence of the market with its decisions of late.

Another logical buyer would be CopperCo, particularly if it was able to use the processing method it uses at its nearby Lady Annie operation at Mount Oxide.

An industry source said Mount Oxide could fetch about $30 million. Perilya shares closed 2c lower at 55c yesterday, down from $4.48 this time last year.

Grim tidings

As the reporting season draws near, the prospect of a further sharemarket mauling is growing - and not just on the results for the latest financial year, which are about to be unveiled.

Macquarie Equities says that, while forecasts for 2007-08 have already been downgraded to incorporate most of the bad news expected, there is still plenty of room for grief when it comes to the outlook for 2008-09.

"Despite the downgrades seen already, our analysis suggests that the forecasts are expecting operating margin expansion to come from domestic, mid-size and cyclical stocks at a time of a sharp slowdown in the local non-resource sector," the broker said, citing stocks like Qantas, Seven and David Jones.

Macquarie said forecast earnings-a-share growth in 2008-09 of more than 10 per cent meant that "downgrades will still be potent".

xchange@smh.com.au