Hanover hits early snag in pay-back plan

Mark Hotchin. Photo / Brett Phibbs

Investors in Mark Hotchin and Eric Watson's Hanover Finance will not now get all their money back as forecast by the company when it sought support for its five-year moratorium plan late last year.

Having received only three payments of 2c in the dollar since they approved the moratorium, investors owed about $500 million were yesterday told that the property market recovery Hanover Group had been banking on to allow full repayment had not materialised.

Investors in Hanover Finance are now likely to receive 70c in the dollar over five years.

Investors in sister company United Finance are now likely to receive 90c in the dollar.

Unsecured note holders owed $26.3 million are being told the company is "unable to forecast any repayment" for them or bond holders.

"There has been a significant deterioration in the property development sector, resulting in a disconnection between property valuations and the market value of assets," chairman David Henry said.

"This has resulted in a large number of borrowers being unable to repay or refinance their loans as they fall due."

The difficult environment placed the group's "timing and strategies" for the realisation of loans under pressure "and our possibility for full repayment to investors in doubt".

A clearer picture would emerge once the company's June-year results were finalised.

This had been delayed by difficulties in reaching agreement with its auditors KPMG over "the appropriate level of provisioning and impairment" on its loan book.

The company said that at the time it formulated the moratorium, it had expected the property market to have stabilised and be showing signs of recovery by late this year or early next year.

But even as investors were considering the moratorium plan last December, a PricewaterhouseCoopers report said it was "optimistic" in its projections for loan recoveries.

PWC's analysis indicated "a real prospect" that investors would not get all their money back under the plan.

It predicted that Hanover debenture holders would get back between 60c and 83c of every dollar owed.

Shortly after his company froze repayments in July last year, Mr Hotchin told the Herald he and Mr Watson would, if necessary, use their own money to repay investors.

"The bottom line is there will be additional money put in to ensure the investors get their money," they said.

Yesterday, Mr Hotchin said: "Despite this negative development, Hanover remains committed to providing the best possible result for investors in light of these circumstances."

Company spokeswoman Hilary Marett said Mr Hotchin, Mr Henry or chief executive David Bryan were not available yesterday to make any further comment.

Louise Edwards of Perpetual Trust, which represents the interests of United Finance investors, yesterday criticised the company for giving the information to the media before she or investors had received it.

"This is not the way to run a moratorium," she said.

"Their primary obligation at this stage should be to the investors."

HANOVER FINANCE

* Formed in 2001 when Eric Watson and Mark Hotchin consolidated $650 million worth of finance and investment assets, including Elders Finance, Nationwide Finance, Leasing Solutions, Elders Home Loans and Hanover Securities.

* It lent heavily to the booming property development market, including its shareholders' own projects, and by the end of 2007 was ranked NZ's fourth-largest finance company, with a loan book of $749 million.

* Early last year, as smaller rivals toppled, the company lost a case taken to the Advertising Standards Authority about its television advertisements that featured former newsreader Richard Long and claimed the company had the size and strength to withstand "any conditions".

* On July 23 last year, it suspended repayments of principal and interest to 16,500 debenture investors in Hanover Finance and sister company United Finance, owed a total of $527 million.

* After weeks of delays, Hanover unveiled a moratorium plan in late November which proposed repaying debenture investors 100 per cent of their principal over five years. Under the plan, Hotchin and Watson put in further cash of their own - $96 million according to company estimates, or $36 million according to PricewaterhouseCoopers.

* On December 1, debenture holders overwhelmingly voted in favour of the plan which PricewaterhouseCoopers judged "optimistic" but marginally preferable to receivership.