Strategic Finance outlook becomes more uncertain

One of Strategic Finance's property investments included the Soho Square development in Auckland's Ponsonby. Photo / Steven McNicholl

Strategic Finance's outlook has become more uncertain with the finance company today informing investors that a further increase in its provisions for bad loans will trigger negotiations with its trustee.

Strategic Finance is already in negotiations with its trustee after failing to meet a payment target in its moratorium agreement on January 7.

Strategic Finance froze repayments to 15,000 investors and won approval for a managed wind-down of its loan book as an alternative to receivership last year. It owes investors about $325 million.

It said today in a letter to investors that the board has decided to make a further bad debt provision of $106m, which will produce a loss after tax of $84m in the six months to December 31 accounts.

The provision means that the company's total loan book value, net of provisions, has fallen below 75 per cent of the aggregate of principal owed to debenture holders, depositors and subordinated notes holders.

This triggers a "review event" under the moratorium terms.

"We will look to update you as soon as is possible on the progress of the negotiations with the trustee," Strategic Finance said.

The extra provisions resulted from a continued deterioration of the property market.

"Whilst the general view is that the property sector has stabilised, and this may create the opportunity to recover against provisioning previously made and an improved market for the realisation of property securities held by Strategic Finance, nevertheless we have recently seen some of our larger lending exposures become more distressed as first mortgage lenders have moved to appoint receivers to undertake aggressive enforcement and recovery activity," the company said.

This made the outcome for Strategic Finance in realising assets uncertain.

The company said its directors believed it was prudent to make a full provision for loss,

"The board wishes to emphasise that this estimated result is preliminary and that it is subject to audit as well as further management review, and that the actual results may be different should there be any recovery against provisions made or if further provisions be required," the company said.

The company reported a $174.7m loss for the year to June 30, having previously reported a loss of $32.7m in the six months to December 2008.

- NZPA