The "arithmetic does not work out" for a number of finance companies in moratorium and their failure to meet obligations will result in more negative publicity for the industry, says Cynotech chief executive Allan Hawkins.
Cynotech, which has bought loan books from a number of failed finance companies, reported a
$1.26 million first-half net profit last week.
In the company's first-half report released yesterday, chairman Hawkins said that it had been "a period of continued consolidation rather than growth as the group continues to witness the effect of the problems in the wider finance company sector".
Citing the string of announcements of big debt provisions by a number of finance companies, Hawkins said it was apparent there were still huge difficulties to overcome in the sector, "and in some cases if some of those finance companies were to provide aggressively against their property development and property speculation loans then they could be in serious breach of their covenants".
"We simply believe that the arithmetic does not work out in some cases and this will likely lead to the non-fulfilment of conditions in some finance companies which are under a debenture holders' moratorium.
"This will have a continuing negative impact on the public perception of the finance industry and we, as a group, have to deal with this and ensure that we are not caught up in this negativity."
Despite reported signs of a pickup in the economy, Hawkins said Cynotech did not believe the worst had been seen in the property and credit sector, "and this will continue to impact on the finance industry".
"We expect the next six months to be a difficult trading period."
Hawkins, who achieved notoriety through the collapse of his huge Equiticorp group in the late 80s and his conviction and jail sentence on fraud charges, has more recently run foul of the Takeovers Panel and the Commerce Commission.
In the prospectus of Cynotech's $10 million capital raising, the company disclosed that the commission had notified it of its intention to prosecute subsidiary Budget Loans for alleged infringements of the Credit Contracts and Consumer Finance Act and the Fair Trading Act.
Yesterday Hawkins said the company had yet to be advised by the commission exactly what its concerns were.
Cynotech shares rose 2.4c to 16.4c yesterday.
