Director slams old DNZ structure

Simon Botherway

An independent director of DNZ Property Fund which floats on NZX next month says the way the business was established left existing shareholders in an invidious position.

Simon Botherway, a former part-owner of institutional investor Brook Asset Management, criticised the old structure of the business.

"I would never have advocated anyone invest into the structure established by Money Managers. The termination of the management agreement was necessary and both PricewaterhouseCoopers and Goldman Sachs JBWere advised accordingly," he said.

MMG (formerly Money Managers) has been critical of DNZ's restructuring, capital raising and initial public offering.

DNZ has thousands of existing shareholders, many of whom bought into the property business via Money Managers. Now, MMG says its clients stand to lose 40 per cent on the deal.

DNZ has been trading on Unlisted at between 37c and 45c over the past year and the capital raising is at 33c a share.

Other listed property vehicles such as Kiwi Income Property Trust are trading at big discounts to net tangible asset backing and have recently undertaken capital raisings at even larger discounts.

To sweeten the DNZ deal, a big pool of shares has been set aside for existing shareholders.

DNZ's constitution prevented the company being listed on the main board in its current form.

DNZ shareholders had no voting rights and got no say in the deal to pay a third of the money raised to chief executive Paul Duffy and ex-chairman Alastair Hasell.

Botherway said he went on the DNZ board at the request of major institutional investors.

In response to criticism of the DNZ board for entering into related party transactions, Botherway said: "Related party agreements and transactions are generally to be discouraged.

"It is disingenuous to claim that the board is entering into a related party agreement, when it is in fact terminating an existing one.

"Why investors were put into such a structure in the first place is a question which should be put to Money Managers.

"Their principals and associates have benefited from this arrangement. The value transfer from shareholders to manager took place when those poorly advised investors were convinced to part with their money in the first place."

Botherway said he would not have gone on to the board if he believed that the existing constitution and related party arrangements were to remain in place.

The class-A and class-B shareholder structure established by Money Managers is one where the manager (originally owned by principals of Money Managers and their associates) owned all the class-B shares which gave the incumbent manager practically unfettered rights.

The constitution says that a quorum of the board of directors is satisfied by the attendance of a solitary "B" director at a board meeting. This has the effect of entrenching organisational control and direction in the hands of the manager who was effectively remunerated based on the total amount of assets under management.

The capital raising and listing process will eliminate those arrangements.