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The ongoing finance company meltdown gathered pace yesterday as yet another property-focused lender, Dorchester Pacific Finance, threw in the towel, saying it would ask investors to approve a "deferred repayment plan".
Dorchester, which is listed on the sharemarket, is now the 24th finance company in two years to
break down and the third in less than a week.
With Dorchester's $176 million, investors' funds tied up in failed or stricken firms now total almost $2.8 billion. That total rose by $666 million in the past week alone.
Following a board meeting yesterday, Dorchester's chairman, Barry Graham, said his company would withdraw its prospectus, effectively ending efforts to raise money from the public, and "will seek the approval of debenture-holders and note-holders to a deferred repayment plan, but with continued interest payments".
Dorchester's move is similar that announced on Tuesday by St Laurence, the Wellington finance company in which it holds a 25 per cent stake.
Mr Graham gave the same reasons cited by St Laurence boss Kevin Podmore, and by Dominion Finance's chief executive, Paul Cropp, when his company hit the wall last week.
"As a result of the rapid decline in the property finance market and a continuing fall in reinvestment rates the board has formed the view that there is now a risk of a cash-flow shortfall arising in future months."
Mr Graham said a deferred repayment plan should give the company time to realise property loan positions "in an orderly way and ensure full repayment to debenture-holders and note-holders".
Dorchester owes $168 million to debenture stock investors and $8 million to subordinated note-holders.
It has total assets of $212 million, including $18 million in cash.
While Dorchester's repayment plan still requires approval from the company's trustees and then from investors, repayments of maturing debentures and notes will be suspended from today.
Financial adviser and industry commentator Chris Lee believes the deferred payment plan announced by Dorchester and a similar plan from St Laurence demonstrates an "honourable" approach.
Yesterday, he contrasted this approach with the desperate last-minute scramble for cash by some of the failed companies and their subsequent breach of their "trust deeds", which are intended to protect investors.
"The good news is that Dorchester is in a position, like St Laurence, to be proactive.
"These companies have acted before they have to. Dorchester has cash in the bank."
NZPA reported today that Dorchester chairman Barry Graham said the percentage of investors rolling over their investments went from under 20 per cent in May to under 10 per cent in June.