A big loss is a good deal?

Quote of the day:

. . .In terms of repayment, the banks’ “equity” stands somewhere near the contractor who cleans the windows at company headquarters.

If the Green Party really believes that kind of ownership is a kind worth buying, then heaven help the taxpayer when it gets near the purse strings of the Treasury. . . Hamish Rutherford

He was writing about Gareth Hughes’s view that banks taking a huge loss with Solid Energy was somehow privatisation by stealth.

Does he really believe that accepting a big loss in the hope that it will prevent an even bigger one makes it a good deal for the banks?

If so he merely confirms that he and his party don’t understand finance and business.

17 Responses to A big loss is a good deal?

  1. Neil says:

    I cannot grasp how naive,tgnorant and stupid the Greens are when it comes to economics. Apparently Hughes was a clown in his earlier working days. That now seems to be confirmed by the nonsense coming out of his mouth.
    NZ’s economic future shouldn’t be threatened by the Green idiots plus their Labor lackeys.NZers should realize that our economy currently is one of the strongest around.


  2. Viv K says:

    Some people use insults when they don’t have an actual argument. 4 overseas banks now own 14% of an SOE. Mr Hughes was not wrong when he called it privatisation by stealth. That future thinking investors should divest from fossil fuels is another issue.


  3. Cadwallader says:

    I wouldn’t describe it as anything other than the banks swallowing a mess…I suspect reluctantly.


  4. Quintin Hogg says:

    Viv, 4 banks “own” interests in a company which to my eye is insolvent and should be liquidated. The price of this very dubious privilege is a very large haircut in financial terms. I.e writing off 10s of millions of dollars of debt.
    The 14% share in the company does not give the much in the way of rights either. They are along for the ride which from this observers position on the couch looks decidedly bumpy.


  5. robertguyton says:

    You cannot grasp?


  6. Viv K says:

    Cadwallader and QH, I would not argue with you that the banks have bought into a mess. Some of that mess was made by Bill English who directed Solid Energy to borrow more. I was pointing out that Neil’s insulting comments about Gareth Hughes were wrong, part of Solid Energy HAS been privatised.


  7. Gravedodger says:

    Wonderful, observing those with zero knowledge of how commerce, debt, equity and security actually work in the real world.

    The roll call continues.

    Rutherfrd did his best to give a few clues but to the clueless it has no resonance.

    Could have posted it under humor or Sunday smiles Ele heheheh.


  8. Viv K says:

    Gravedodger, you prove my earlier point about those who do not have an argument resorting to insults instead.


  9. Cadwallader says:

    How much of the “mess” do you attribute to Bill English and why?


  10. Viv K says:

    You were the one who 1st called it a ‘mess’ Cadwallader. How much could be attributed to Bill English I could not quantify as such, other than to note he signed a 2009 letter to the board of Solid Energy urging them to increase their debt and ‘to release all surplus capital to the shareholder as special dividends’. He also turned the first sod on the failed $25 million briquette plant, where he said ‘there were huge opportunities for further developments’. John Key said this year that ‘The causes of the financial crisis at Solid Energy are the usual suspects in failing businesses – too much debt, unsuccessful investments and no reserves to weather a slump in coal prices’.


  11. robertguyton says:

    I was there the day Bill and Don (remember him? Don Elder it was, in his fluoro jacket) turned those two sods. Full of pep they were. Full of it.


  12. TraceyS says:

    For those here who don’t think it is appropriate for the banks to be ‘repaid’ by way of receiving equity, how would you suggest the banks recoup the debts owed to them?


  13. Gravedodger says:

    Gee wiz Viv, hadn’t thought that what I see as the truth would be insulting but if the cap fits.
    Wasn’t being personal, it’s just business.

    Must try and find business guru Gareth’s ruminations on electricity sales from newtalk after seven this morning.
    I wonder if he addressed the rare earths that solar panels consume, along with the carbon footprint the manufacture generates?
    Probably not, just another attempt at relevance.


  14. Viv K says:

    Unless a debt/ equity swap was in the original loan documents, there should have been wider discussion before this happened. What next? Would banks get part ownership of hospitals in exchange for health debt?
    I’m not sure how things should proceed for Solid Energy. I don’t want to see it financed to go back into the lignite business, the planet does not need the extra CO2 emissions.


  15. TraceyS says:

    If an entity can’t repay what it owes in cash then there must be a substitute. If a private company couldn’t repay its debts then its assets (ie. capital) would be sold in order to repay the parties owed money (eg. banks).

    Gareth’s statement that “[t]his is a conversion of debt into ownership…” is incomplete. It should say that this is a conversion of debts, owed to the banks, into ownership. How is that so different from the banks being owed money and holding securities over Solid Energy’s assets?


  16. TraceyS says:

    And on the issue of the original loan document, the signing parties would surely be free to vary that agreement upon negotiation and agreement. As shareholder in this negotiation, the public is being represented by their elected representatives.

    If hospitals were owned by companies then I guess, in theory, that banks could end up owning shares. But until they are, you probably don’t have to worry about that. If something like that was ever proposed, then that would be the time to have the discussion.


  17. robertguyton says:

    Solid Energy – what a huge embarrassment to the John Key-led National Government. Such incompetence, the destruction of a SOE that was crowing so loudly! And you people were crowing along with it, as I recall.


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