KEY POINTS:
North South Finance's meeting next month to vote on a moratorium proposal looks likely to provide some fireworks, as big question marks hang over the quality of the company's loan book and a number of related party transactions.
The company, a subsidiary of listed Dominion Finance Holdings, which
went into voluntary administration last month, released details of a moratorium proposal, in which investors owed principal of $102 million, including debenture holders and banks, would be repaid over the next three, or possibly four, years.
Subject to the availability of funds, the company intends paying accrued interest to stock holders quarterly, once all the principal is repaid, although it does not expect to do so, "unless circumstances significantly improve". In fact, full repayment of principal was by no means assured.
The company has a loan book of $109 million, mostly on property, of which more than half is in arrears.
Just under $9 million of the book is in "security sharing loans", by which arrangement North South bought a share of loans owned by sister company Dominion Finance Group (DFG), now in receivership, during the months just before both companies ceased making payments to investors. For the moratorium proposal, North South assumes it will not recover any of the cash from these loans.
With $24 million in provisions on the balance of the loan book, the company says total provisions are $33 million. Excluding the security sharing loans, 30 per cent of the provisioning "may ultimately be applied to a single borrower, which represents the largest single exposure in the company's loan book," the company says.
The Business Herald understands the development is a proposed residential subdivision at Baring Head at the mouth of Wellington Harbour, which has yet to gain resource consents. It is understood North South's exposure to the project is about $13.5 million.
Meanwhile questions remain over one of the "shared security loans" made by Dominion and North South this year. The $5.17 million loan was made to a company called WAFD whose sole director Robert Whale was a director of North South.
The balance of this loan at the end of September was $4.3 million and at the financial year-end it had an impairment allowance of $2.7 million. The loan enabled an earlier loan made by Dominion Finance Group to a defaulting related party borrower to be partly refinanced with another lender and for the remaining balance to be split between DFG and North South.
Dominion Finance Holdings' major shareholder and former chief executive Terry Butler has denied that he or associated interests were the related party and Whale has said it was not clear whether it was Butler or DFG itself.
The company's trustee Covenant Trust has raised concerns about potential breaches of related party provisions contained in the company's trust deed and has referred this to the Companies Office.
HANOVER PLAN
A press conference is currently underway detailing Hanover's repayment scheme for investors. All details are embargoed until 11am today.