NZ cash bails out Aussie investors

New Zealand investors' money has been used to repay loans that finance company Bridgecorp made across the Tasman which are deemed too risky for Australian investors by that country's securities regulator.

Late last week, the Australian Securities and Investment Commission (ASIC) obtained orders from the Supreme Court of New South Wales restricting Bridgecorp's Australian subsidiary from raising further funds in Australia by way of an unsecured notes offering.

It also required Bridgecorp to repay existing noteholders as their investments matured and have its loan book reviewed by an independent expert.

The commission said it had applied for the orders after a study of the company's December prospectus and a supplementary one in February "raised significant concerns" about Bridgecorp Australia's position.

Bridgecorp's New Zealand operation has already supported its Australian subsidiary to the tune of A$52.1 million including the A$28.6 million purchase of loans secured over Australian property.

It does not expect further significant support to be needed, but said it reserved the right to do so if its forecasts were inaccurate so long as the transactions did not breach the conditions of its trust deed.

A local commentator observed that the commission was effectively saying Bridgecorp had to start repaying its Australian investors "and the only way they can do it is to keep on transferring money out of New Zealand".

"This is a glaring example of them [ASIC] moving in to protect Australian investors and it is New Zealand investors who are going to cop it."

However, Bridgecorp managing director Rod Petricevic - who is standing for election to the board of finance company Dorchester Pacific today - downplayed Bridgecorp's issues with the commission as "of a descriptive-type nature...how we describe the product".

He said the group had elected to fund its Australian operations including the repayment of maturing unsecured notes through cashflow generated by the repayment of short-term mortgage lending.

"We've never missed a beat on either side of the Tasman in paying out our investors the interest on the due date or the principal on the due date."

He said there had been "two or three mortgages that we have met the obligations with over here".

"This company's got $80 million worth of capital - it's not a material matter, according to our lawyers."

Bridgecorp had "probably less" than A$100 million in unsecured notes on issue in Australia and its loan book there was "something like A$140 million".

Securities Commission primary markets director Kathryn Rogers said that with at least one of Bridgecorp's New Zealand businesses buying loans from the Australian company, "in that sense, yes, New Zealand investors' money is doing that".

However she noted the intercompany loans were within the related party covenants in the trust deed.