Allied Farmers say cost overruns on Kawarau Falls will cost them dearly. Photo / Supplied
Allied Farmers has slashed the value of its single biggest loan on the $1 billion Queenstown luxury hotel project Kawarau Falls Station.
"It's been provisioned down to near zero," Allied's Rob Alloway admitted yesterday.
That was the largest real estate loan exposure of the NZX-listed business.
Now, Allied has decided
that is virtually worthless.
Allied took over Hanover's subordinated position on the project by Auckland developer Nigel McKenna, who Alloway praised.
"He's completed a number of projects on time and to budget and I would be very surprised if he was 30 to 40 per cent out. But once he was removed from that project, there were massive cost overruns," Alloway said.
John Loughlin, Allied's chairman, and Alloway criticised the project management on Kawarau Falls, saying massive cost overruns would cost them dearly.
"The most disappointing position to report is that at Kawarau Falls Station. This ambitious project ranked as the largest exposure in the acquired asset portfolio and has now been largely provisioned," Loughlin and Alloway said.
"The combination of receivership of stage one, coupled with what we consider to be poor project management leading to a large cost overrun, has diminished any chance of Allied making a recovery from the initial construction (a four star hotel and a five star hotel and residential apartment complex).
"Unfortunately, stage two currently presents a worse situation with debt totalling in excess of $100 million, with multiple charge holders, secured against the property with an uncertain short to medium term," Loughlin and Alloway said.
Allied Farmers has a $19 million second mortgage over stage one and it is that loan which it now considers virtually worthless.
Standing first in line on stage one is BOS International, which loaned $180 million on the project and which appointed receivers KordaMentha. Allied has a second mortgage of $76.3 million over stage two, behind Fortress.
