KEY POINTS:
Industry experts say they are becoming alarmed at big cracks opening up in the property finance sector which yesterday threatened Wellington-based company St Laurence.
St Laurence, which owes about $250 million to 9000 debenture and capital note holders, said it had ceased lending, stopped raising money from the public and would seek extra time to meet its obligations to investors via a "scheme of repayment".
It is the 23rd finance company to fail or strike serious difficulties in little more than two years, taking the amount of New Zealanders' savings at risk as a result to $2.5 billion.
Like a number of his rivals recently, St Laurence boss Kevin Podmore said his company was being squeezed by low debenture reinvestment rates on one hand and late repayments from its property developer borrowers on the other.
A well placed industry figure told the Business Herald a rapid worsening of property market conditions, with all types of lenders including banks extremely wary of making fresh loans, showed the sector was now facing "systemic" problems.
"Developers are unable to meet maturity dates or refinance. Basically all property finance companies are having to deal with continually moving maturity dates."
Another industry expert, who likewise did not wish to be identified, said: "It's very disturbing, some higher quality companies are running into strife."
He said many finance companies' major problem was no longer the well-publicised fall in reinvestment rates.
"That's not what's pushing companies over now, what's pushing them over is the property market. This is money they've lent to developers which they are not realising capital or interest repayments on.
"The decline in the property market I think is a lot steeper than people appreciate and that's flowing through to the quality of loan books."
Meanwhile, Podmore said virtually all of St Laurence's loans were not performing. "Even our very good loans we're having issues about timing of repayments.
"Things have moved very quickly, and it did take us by surprise."
St Laurence has a loan book of $170 million and also owns part of sister company St Laurence Property and Finance.
Podmore, who owns 75 per cent of St Laurence through Auguste Investments, said although the company was not in default of its obligations under its Trust Deed, "given the current environment, there is considerable risk that it might do so in the future".
"It's not a case like with a lot of the other guys that have missed payments and put their hands up, we're being proactive in saying we see this as a strong likelihood so we think we should move now. What we want to do is to get investors to agree to give us some time to make sure we get all their funds back and the best way we see is by them approving a scheme of repayment."
Assuming the scheme is approved by Perpetual Trust it will go before St Laurence investors next month. Until then St Laurence would continue to make payments of interest and principal as they fell due. Shares in listed Dorchester Pacific, which owns 25 per cent of St Laurence, fell 2c to 31c.
St Laurence:
- Manages property investor St Laurence Property & Finance.
- Manages NZX-listed National Property trust.
- Manages $1 billion -plus of assets for 16,000 investors.
- Has offices in Wellington, Auckland, Christchurch and Sydney.
- Has been offering 15 per cent interest payments on bonds.
