KEY POINTS:
BLUE CHIP FALL OUT
Listed finance group Lombard is "not really very happy" that Mark Bryers' Blue Chip Financial Services remains a shareholder in Tasman Mortgages.
Lombard bought 70 per cent of Tasman from Blue Chip, or one of its many associated businesses, in November last year.
Lombard chief executive Michael Reeves said he and his company at the time had no idea that much of Tasman's business was extending credit to Blue Chip clients in order that they could put a deposit down on a Blue Chip property, many of which are unlikely to be built.
Nevertheless, these borrowers are continuing to make payments, with some of the profits from this business, presumably flowing back to 30 per cent shareholder BCFS.
"You can be sure of one thing," Reeves told Stock Takes this week, "we're certainly exploring our legal options with respect to the agreement between Lombard and Blue Chip".
Reeves says Lombard was unaware of what many of Tasman's clients were using the money they borrowed for, indeed he says Lombard was unaware of Blue Chip's looming difficulties.
MERRY GO ROUND
Meanwhile, Lombard has other things to worry about - the finance company sector is not a comfortable place to be.
While Reeves says Lombard's reinvestment rate is holding up, "the real challenge in the sector is the merry go round of settlements".
"We have clients all the time that are going to repay and then they'll go to other finance companies, very significant ones, and you would think realistically that they could get a loan of 30 to 60 per cent loan to value ratios, but there's no one in the market lending money. No one."
General market conditions aside, Lombard Finance appears to be facing particular issues of its own, if the amendment to its prospectus, filed on Christmas Eve last year, is anything to go by.
The document shows that the proportion of riskier second mortgages on its total loan book of $144 million rose from 40 per cent a year ago to 56 per cent as at December 16. It also shows Lombard's concentration risk is rising, with loans to its six largest debtors accounting for 65 per cent of its loan book, and one debtor accounting for loans totalling somewhere between 160 and 169 per cent of the company's total equity of $24 million as at September, or possibly as much as $40 million. Gosh, that's 27 per cent of the total loan book!
However the company says it is managing this concentration risk and since March last year "one of these exposures has been purchased by an independent third party developer who has undertaken a significant number of developments in Auckland and elsewhere".
"The developer is moving ahead at completing the project."
Although Reeves refused to divulge any details, Stock Takes wonders whether the biggest exposure, and the one purchased by the third party developer, is the Brooklyn Rise residential development in Wellington.
Reeves confirmed the company does have an exposure there but declined to give details, citing client confidentiality.
However, he did say it was a good development "because it's so close to the city".
After suffering setbacks related to issues around council consents and one or two little environmental accidents, the original designer and developer Lance James sold out to Auckland developer Tim Manning late last year.
Manning is renowned for his involvement with leaky building issues in Auckland over the years and more recently it emerged he was the ultimate owner of the Turner Waverley development in Turner St, Auckland.
It turns out that some Blue Chip investors put deposits on apartments in the complex. Stock Takes wonders whether, in an ironic twist, that at least some of these investors used cash they'd raised from mortgages on their homes, sourced from Tasman Mortgages.
Lombard Group shares closed untraded at 79c yesterday.
HAWAII BLUES
Singapore-based and New Zealand-listed GuocoLeisure on Tuesday said it was ceasing operations at its Molokai ranch tourism complex in Hawaii.
GuocoLeisure was formerly BIL International and before that Brierley Investments and this week's move is yet another postscript to a fascinating era of New Zealand's business history.
Stock Takes believes the words of New Zealand Press Association's finance editor Simon Louisson, who knows the story of Sir Ron Brierley and his companies so well, are appropriate here.
"(GuocoLeisure) has finally put down one of its biggest dog investments amongst a pack of dogs.
"Like other dogs in the GL tourism portfolio kennel - Fiji's Denaru resort and Britain's Thistle Hotels - Molokai has been a black hole into which money was poured."
The resort, on 24,300ha of land covering nearly 40 per cent of Molokai island which lies between the islands of Oahu and Maui, racked up losses in almost every year since it was bought in 1989 for US$40 million ($49.7 million). In 1997 BIL valued it in its accounts at US$265 million. It wrote US$89 million off its book value in 2000 and other very large write-downs followed.
Annual losses often amounted to US$9-US$10 million and thousands of hours of management time were spent trying to rectify problems at the complex which included the Molokai Lodge, Kaluakoi Golf Course and Kaupoa Beach Village.
Despite years of trying, BIL failed to attract investment partners to develop Molokai or buyers for the property which was damaged over the years by vandals, poachers and protesters unhappy with the development of the island.
GuocoLeisure said the shut-down would not have any significant financial impact on its result.
GuocoLeisure shares closed 2c lower at 68c yesterday.
RAINBOW EFFECT
Why the red ink when the black stuff is white hot?
State-owned coal company Solid Energy this week posted a first half loss of $2.7 million against a $35.3 million profit a year ago.
McDouall Stuart analyst John Kidd was somewhat bemused. Even taking into account the $25 million in costs incurred in managing the snail protests and delayed shipments from its main export mine at Stockton on the West Coast, the loss was strange given the market for coal at present.
Kidd attended a coal industry conference last week in Miami and said the vibe was upbeat.
"To post a loss in this environment, how can that happen? The issues they are having with Stockton must be quite serious."
Those issues have included Greenpeace's Rainbow Warrior's blockade this week of a ship carrying 60,000 tonnes of Solid Energy coal bound for export.
And to be fair, Solid Energy did indicate in its half year report that it expects to benefit from high prices when it renegotiates long-term contracts in the second half of the the year.