Dorchester bows to regulatory pressure, provides more rescue plan detail

Dorchester Pacific has bowed to Securities Commission pressure and issued supplementary information for investors on its capital reconstruction plan.

The additional information is aimed at countering commission criticism by using net present value calculations for expected returns under both Dorchester's plan and the alternative of receivership, plus greater detail on the potential receivership scenario. Net present value calculations show the value today of money to be received or paid in the future.

In its previously released documentation on the plan, not using net present value calculations, Dorchester estimated returns to investors - on top of the 50 cents in the dollar of their principal investments they’ve already received - under its plan at between 35.4 cents and 40.7c and returns under a receivership somewhere between 16c and 26c.

Using net present value calculations Dorchester now estimates returns under its plan at 33c and 19c under a receivership.

The receivership figure is based on several factors including the receiver’s costs being equivalent to 5% of total assets and the four hotel properties that are part of the plan being sold for NZ$23 million, or 70% of their combined book value. Dorchester estimates a receivership would be concluded within a year.

The capital reconstruction plan represents an exchange of debt for a combination of cash, debt, property and equity. If investors’ approval is secured, Dorchester estimates its capital reconstruction plan would be implemented on August 24 this year.

Paul Byrnes, Dorchester's executive director, recently expressed frustration with the Securities Commission's views, telling interest.co.nz he might have more to say after the capital reconstruction plan process was done and dusted.

This would include being happy to talk to Simon Botherway, the chairman of the Government’s Financial Markets Authority Establishment Board, about “how a process like what we’ve gone through should not be handled.”

Dorchester froze repayments to about 7,800 investors in June 2008. At the time NZ$163.7 million of secured debenture stock and NZ$8 million of subordinated notes were on issue. Investors approved a deferred repayment plan in December 2008 that anticipated them being repaid in full over three years.

They got back half their money but after property losses, write-offs and provisions threatened further repayments, the company came up with its capital reconstruction plan which investors will vote on at Auckland's Ellerslie Event Centre on June 30.

Interest.co.nz's Deep Freeze list of finance company failures shows over NZ$6.6 billion has been frozen in almost 200,000 accounts since the crisis began in 2006.