KEY POINTS:
New Zealand Finance is one of the few listed finance companies to survive last year's carnage although its shares have been languishing unchanged at 35c since October, a far cry from the $1.65 peak reached in mid-2006.
Last year chief executive John Callaghan said his company's share-price decline
was a result of being lumped in with other finance companies.
"We're being seen as a vanilla finance company, whereas we have multiple funding and distribution channels. We haven't come out with any disclosure that performance will be substantially lower, we're still tracking well and still growing."
Among NZ Finance's distribution channels is well-known brand Mike Pero Mortgages, now headed by former Geneva Finance chief executive Shaun Riley. NZ Finance co-owns Mike Pero with Australian company Liberty Financial, a non-bank mortgage lender which pioneered "low doc" lending, Australasia's equivalent to US "sub-prime" loans.
Liberty, however, has fared well, raising more than A$1.5 billion in fresh funds last financial year despite the turmoil in global credit markets and investor aversion to higher-risk lending.
Liberty was able to tap the Reserve Bank of Australia's funding window after the central bank widened the criteria for repurchase agreements. Liberty's founder and major shareholder, Sherman Ma, is clearly a very smart operator.
Callaghan and his team are no slouches either - two subsidiaries, Finance Direct and NZF Money, secured government retail deposit guarantees last year, putting them in the box seat for subsequent fundraising.
FALLEN STAR
The mess left behind by Kelvin Syms' Vestar investment advisory business is unlikely to be tidied up any time soon.
For the benefit of latecomers, Syms' company and its investment committee, headed by Donal Curtin, demonstrated an uncanny ability to select doomed finance companies on behalf of its clients.
The list includes Capital+Merchant, Bridgecorp, OPI Pacific Finance, MFS Boston and St Laurence, all of which are either in receivership or moratorium.
"After 30 years' experience with mortgage lending we feel we are qualified to judge the quality of these investments not only on the balance sheet facts and figures but on the quality of the loans being made," Syms wrote to his clients in early 2005 in response to a growing number of warnings of vulnerability among property-based finance companies.
Owen Tallentire's Capital+Merchant, whose high level of disclosed and undisclosed related party lending was recently highlighted by receivers, is a good example of the quality of Vestar's choices. Stock Takes understands Vestar, or Northplan as it was known before that, invested substantial client funds in the company whose receivers now say will pay absolutely nothing to debenture holders owed $167 million.
Apart from its relationship with Vestar, Capital+Merchant appears to have been pretty tight with ill-starred Australian company MFS, now known as Octaviar, which ended up buying Vestar from Syms.
Shortly after Capital+Merchant folded, Tallentire sold a related finance company, Cymbis, or Fairview New Zealand, to MFS. However, Fairview, which owed just shy of $7 million to several hundred debenture investors, was also placed in receivership a few months later.
In his latest report, receiver Rod Pardington of Deloitte says, all going well, insurance on Fairview's loans might yield up to 68c in the dollar but then again he is unwilling to give an estimate of how much investors might get back.
TANGLED WEB
Having dropped a bundle on Vestar's finance company picks, some of its unfortunate clients are also now waiting on full repayment of money owed to them by Diversified Mortgage Trust No 1.
DMT had three classes of investors, and Stock Takes understands "A" noteholders, owed about $12 million and whose investment matured in November, have now been repaid in full.
A spokesman from Praesidium Asset Management, which manages the trust, said "B" noteholders, owed about $15 million and whose investment matured at the end of December, have received 16c in the dollar to date. Payment of the balance depended on mortgage recoveries, he said.
Geoff Staniland of Gould Wealth Management, which bought Vestar off MFS last year (and still retains Syms as a consultant), reckons Vestar clients his company inherited were owed about $6 million before the 16c repayment.
It turns out that Praesidium bought the mortgages for its DMT fund from Capital+ Merchant, with whom its management back in 2006 claimed a "close working relationship".
In fact DMT No 1 has $3 million in "C" class notes on issue which were acquired by Capital+Merchant. Byzantine enough for you?
Praesidium, whose managing director Stephen Maud is a former Fay Richwhite man, has also boasted of its previous work in setting up mortgage trusts consisting of loans bought from Rod Petricevic's Bridgecorp. In that instance, however, both trusts repaid investors in full and on time.
STICKY PATCH
Resins and coatings company Nuplex has continued to lose ground since coming out with its second earnings guidance downgrade in little more than two months a couple of weeks back.
Nuplex's guidance gives an idea of how quickly earnings are coming off for some listed companies as the local and global economies slow. Last week Nuplex said it expected full-year 2009 earnings of $85 million, down from the $105 million advised in its November update which was itself down from the $130 million forecast at the time of its AGM.
Morningstar analysts have accordingly reduced their net profit forecast from $42.5 million to $26 million and the 2010 full-year forecast from $47 million to $38 million.
"Given the global economic downturn, we remain wary of the firm's medium-term prospects. Consequently we are neutral on the stock despite seemingly attractive valuations," they said in a recent research note.
Nuplex shares, which were trading at $2.88 before the downgrade, closed 3c lower at $2.44 yesterday.
RETIREMENT FUNDS
Shortly after after revealing a $61.9 million first-half loss yesterday, Metlifecare released details of the capital raising it flagged last year.
The retirement village operator will seek to raise $37.78 million in a two for five rights issue with the new shares issued at $1.08 each. Metlifecare shares closed yesterday at $2.50.
In December the company said the proceeds of the raising would be used to reduce bank debt. "Ongoing weakness in the property market has led the directors to believe it prudent to actively manage Metlifecare's balance sheet," it said.
The company's 82 per cent owner, Macquarie Bank-controlled Retirement Villages NZ, has confirmed it will exercise the rights under its full pro rata entitlement and has received Overseas Investment Office approval to do so.
TRAJECTORY HEADS LOWER
Ah Rakon, what happened? After soaring like a missile following its mid-2006 IPO, shares in the quartz crystal components maker have fallen, well not so much like a bomb, but more, again, like a missile - but this time one that's coming down to earth.
Rakon shares surged above $5.50 in May 2007 but have come off that at times in a precipitous decline. Yesterday they closed steady at 90c, not much more than half of their $1.60 issue price.
The stock was probably not helped when particular fund managers, whose strong buying helped the company on the way up, were forced to unload it quickly at times on the way down again.
But Forsyth Barr analyst Jeremy Simpson points out the company had in more recent times continually disappointed the market on earnings.
"It was always going to be impacted by the higher currency for a while and more recently it's been affected by slowing global demand. As a company it had a very large growth premium factored into it, and with the pullback in the markets those types of stocks have had that premium eroded."
Simpson says the kiwi's decline has yet to affect Rakon, "but that's obviously going to be helpful going forward". While uncertainty in the global economy would continue to affect Rakon, "the underlying business seems to be okay and the sector they're in has got strong growth prospects".
