Hanover asset value shrinks in Allied books

Allied Farmers' loan book has dropped $99.3m, due in part to the Kawarau Falls hotel project in Queenstown (pictured) going into receivership. Hanover loaned $88.7m to the project.

The value of the assets formerly owned by Hanover and United Finance has plummeted by more than half just months after investors agreed to allow Allied Farmers to purchase them in a $400 million deal.

Allied Farmers yesterday revealed the new "fair value" of the assets as part of its half-year report to December 31, which showed a $15.68 million loss.

Before the assets were sold investors were told they were worth $396.2 million but Allied now says the value has shrunk to just $175.5 million.

The valuation drop includes a $20.7 million write-down made before the transaction went ahead, attributed to property sales and bad debt write-offs, and a further $55.9 million in interest adjustments made under the new IFRS accounting rules.

But it also shows $144 million has been written off the assets and loans since the deal went through.

Of that $27 million has been wiped off the value of property assets which are presently up for sale including sections at Queenstown's Jacks Point and Matarangi in the Coromandel.

Investments have dropped $16.8 million.

But the biggest write-down has come in the form of a $99.3 million drop in its loan book.

Allied Farmers managing director Rob Alloway said that was substantially attributable to the troubled Queenstown hotel development project Kawarau Falls, which is in receivership. Hanover loaned $88.7 million to the project and it was its biggest investment.

Alloway said the project had been heavily impacted by the uncertainties associated with stage one and both the second and third stages were now in doubt.

Despite the massive write-downs Alloway did not believe investors had been ripped off. "No, not at all," he said.

Alloway said the original asset values had been taken from the Hanover accounts as of June 30 and investors should remember the current valuation was based on a number of accounting assumptions.

"This is an accounting fair value. This does not show what we will realise the assets for."

Alloway said some of the properties could be developed and sold for two or three times their current value.

But likewise he admitted some could also sell for less.

"I don't think anything is worth what we originally envisaged."

Alloway said it had hit a tougher market than it had expected particularly in its overseas investments. "Fiji is very difficult to work through - there is a limited number of buyers."

Alloway said it appeared Australia's property market had not recovered at all and there was a much higher number of distressed properties on the market than in New Zealand.

But Alloway said he remained confident that a number of properties could be sold in the medium term.

Asked whether Allied intended to take any legal action against the former owners over the loss, Alloway said it did not plan to but it had found some anomalies in the loan book which had been reported to authorities.

Market commentator Arthur Lim described it as a "massive" reduction in value and questioned whether Allied had done enough to correctly value the assets before the deal went through. "Certainly it does bring in to focus Mark Hotchin and Eric Watson and exactly what sorts of policies they were following."

Lim said if investors had been more aware of the values it could have affected the way they voted on the deal.

The revaluation now puts the net asset value of Allied Farmers at 7.4c per share. Lim said if the share price dropped to that it would mean Hanover investors could potentially recover just 30 per cent of their investment.

Allied Farmers closed down 0.2c yesterday at 10c.

VALUE PLUNGES

Former Hanover Assets now owned by Allied Farmers:

* $396.2 million value at sale
* $175.5 million value now
* $144 million written off property and loans