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Resurrected Dorchester to avoid property lending and retail debenture market

Resurrected Dorchester to avoid property lending and retail debenture market

Dorchester Pacific will avoid property lending and won't look to raise money from retail debentures as it eyes a “very simple and very vanilla” future, according to executive director Paul Byrnes.

The company’s investors vote on a capital reconstruction plan at Auckland’s Ellerslie Event Centre on June 30. It aims to return them the bulk of the NZ$82 million they are still owed since Dorchester froze NZ$176 million owed to about 7,800 investors’ in June 2008 blaming a rapid decline in the property finance market and a continuing fall in reinvestment rates.

If investors’ approve the plan, which would see them swapping debt for a combination of cash, debt, property and equity, Byrnes told interest.co.nz Dorchester would look to grow its two existing businesses, Dorchester Finance and insurer Dorchester Life.

Dorchester Finance will provide motor vehicle and consumer finance aiming to build its book to about NZ$70 million, from current levels of about NZ$5 million, or half the NZ$140 million it reached three years ago.

‘We’re looking to get well under half on a monthly basis that we achieved three and four years ago,” Byrnes said.

“Having said that, a lot of those loans we wrote at that time should never have been written.”

Dorchester, which is listed on the sharemarket, was also running down its Senate Finance motor vehicle book, which currently stood at about NZ$15 million.

With Dorchester Life, Byrnes said the plan was to expand the workforce and invest in new products. The business was profitable having delivered a NZ$1.8 million March year pre-tax profit, up from NZ$1.2 million in the previous year. This, Byrnes added, was despite being starved of funds with money diverted to repay investors' under Dorchester’s deferred repayment plan, implemented in December 2008.

The third leg of Dorchester’s future business plan was to keep an eye out for consolidation opportunities.

“We will have NZ$25 million to NZ$26 million in shareholders funds and our capital adequacy will be good,” Byrnes said.

“We think there will be opportunities to look at smaller assets or smaller books just below the radar to perhaps consolidate and take advantage of some of the smaller players who, with the new compliance and everything else, are going to find it impossible.”

Dorchester planned to look for acquisition opportunities in its core vehicle, consumer and insurance spheres.

The company wouldn’t be lending on property, an area where it previously got itself into trouble, for at least three years. Nor will it go back into the retail debenture market for at least three years, Byrnes added.

“The future of the business is very simple and it’s very vanilla,” he said.

“We’re not ruling property out for good, but the problem is it is lumpy and it would be a different model. It’s certainly not on the strategy for the five year forecast that we’ve put in the (capital reconstruction plan) offer document and the prospectus.”

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.

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Days to the General Election: 37
See Party Policies here. Party Lists here.