Read Allied Farmers' statement below:
On 12 November 2010 Allied Farmers advised that it’s wholly owned subsidiary, Matarangi Beach Estates Limited (MBEL), had received notice from HSBC cancelling MBEL’s term loan facility, thereby requiring the facility (currently $19.08 million including outstanding interest and fees) to be repaid.
The MBEL HSBC loan facility has been in default since 18 December 2009, when Allied Farmers Limited acquired MBEL and refused to provide a circa $23 million parent guarantee to substitute those still in place from entities associated with the Hanover Group. Despite being in default, MBEL and Allied Farmers Limited have both, until the request for immediate repayment was made, supported the asset and actively promoted solutions to restructure the loan.
This has included proposing various debt restructuring plans to HSBC over the past 11 months. In addition, Allied Farmers Limited has marketed the property since its acquisition and a recent sales campaign run by Bayleys yielded no offers.
MBEL is a special purpose subsidiary of Allied Farmers Investments Limited whose only asset is the Matarangi Beach Estates property which includes an operating golf course, completed residential sections and a tract of undeveloped land. HSBC has no recourse to any other Allied Farmers’ group entity in relation to the outstanding loan facility.
Agreement on restructuring the loan has not been reached between HSBC and MBEL, and consequently MBEL has advised HSBC that Allied Farmers Limited is not prepared to provide further support to MBEL in order to continue its operations or repay the loan, and accordingly MBEL no longer has the financial capacity to do so. The Directors of MBEL have therefore requested that HSBC appoint a Receiver to MBEL, and HSBC has agreed to this request and today appointed KordaMentha.
The most recent registered valuation of the MBEL assets was $26.1 million (gross of debt) as at May 2010, resulting in a carrying value (i.e. net of debt) of $7.9 million as at balance date (30 June 2010).
Even though the MBEL assets are being managed by the same team as under Hanover ownership, the gross value has diminished by $19.6 million from the $45.8 million gross value attributed to the asset in the 30 June 2009 Hanover financial statements. Those statements were audited by KPMG, reviewed by Hanover’s trustee NZ Guardian Trust, and relied on by Allied Farmers Limited at the time of acquisition.
Allied Farmers Limited Managing Director, Mr Rob Alloway said “it seems obvious to us that the value of these assets in the audited 30 June 2009 financial statements, on which Hanover debenture holders were entitled to rely at the time of acquisition, was unrealistic, as there is no way that the market for this type of asset has deteriorated that much in such a short time frame”.
“This is an unfortunate trend we have seen with most of the property and loan assets that were acquired, and further calls into question the real value of the shareholder support package contributed by Messrs Hotchin and Watson at the time of the Hanover moratorium. The investment community should have expected far better oversight of the moratorium from Hanovers directors, valuers, trustees and auditors”.
Mr Alloway said “it is also disturbing to us that in the days leading up to the receipt of the repayment demand from HSBC, we were, with the knowledge of HSBC, approached by Mr Kerry Finnigan, representing an entity owned by Messrs Hotchin and Watson, proposing a purchase of the MBEL assets for the loan value of circa $19 million.
“Investors can draw their own conclusions as to whether it was a coincidence that when we refused to sell the asset back to Hotchin and Watson, HSBC, who in Mr Finnigan’s own words have a “strong relationship” with Hotchin and Watson entities (HSBC banks both Bendon and Cullen Investments), immediately moved to demand repayment.
The HSBC loan on MBEL we understand is also still guaranteed by entities associated with Hotchin and Watson”.
“The directors of MBEL will be keeping a close eye on any likely sales process by the Receiver to ensure the best value is achieved for the asset for the benefit of our shareholders. We would be disappointed if it turned out that HSBC’s demand for repayment was simply designed to enable the return of the asset to Hotchin and Watson interests at a vast discount to the value they transferred it to us in just November last year”.
Allied Farmers Limited is awaiting an assessment from the Receiver of the likelihood of recovery above the level of the $19 million debt, but reiterates that a further reduction in value is likely.
Read Hanover's statement below:
Hanover Finance is dismayed at Allied Farmers’ attempt to blame others for its own mismanagement, and failure to deliver on its promises, most recently forcing Matarangi Beach Estates into receivership.
12 months ago Allied Farmers announced it had agreed to buy the finance assets of Hanover Finance and United Finance saying “Allied Farmers, assisted by its external advisors, have carried out detailed due diligence on the Hanover and United assets and have built up an understanding of the risk and return profile associated with them.”
Allied actively promoted the strength of its organisation, both financially and operationally, and in particular its ability to manage the assets to preserve value and enhance the prospect of loan recovery, in road shows its offer document and advertisements.
It is with regret that we have for nearly 12 months now seen the continued deterioration of the value of the assets transferred whilst under the management and ownership of Allied. Noticeably the promises and commitments made by Allied have failed to materialise, and these assets seem to have been sold with urgency to meet the distress in Allied's own financial position with the obvious adverse consequence to the former Hanover investors.
Matarangi Beach Estates
On 18 December 2009, Allied settled the transfer of Matarangi Beach Estates Limited ("MBEL") without HSBC's consent, placing HSBC’s prior ranking secured loan to MBEL immediately into default.
As part of the settlement, Hanover and Allied undertook to work together constructively to resolve Allied’s failure to obtain HSBC's consent. Hanover has fully complied with this undertaking attending a number of meetings over several months. Hanover has co-operated because of the strong relationship Hanover's shareholders have had with HSBC over a number of years.
Allied recently stopped paying the interest and fees on the HSBC facility and advised HSBC that it had no further interest in the asset, which has led to the appointment of Grant Graham and Michael Stiassny of KordaMentha as receivers of MBEL.
The HSBC facility was guaranteed by Axis Property Group Holdings Ltd and HFP Investments Ltd (in liquidation), companies related to Hanover. These entities have limited financial resources since the assets they held previously had already been transferred to Allied.
In a confidential meeting with Rob Alloway, and with HSBC's knowledge, a proposal was put forward whereby, if Allied was no longer prepared to support the asset financially, then parties associated with Hanover would look to assist the bank. Their interest in doing so was to assist HSBC to secure repayment of its debt.
Hanover believes that Rob Alloway and the rest of the Allied Board have managed the assets poorly, failed to fulfil their obligations made to investors, and need to start taking responsibility for their own actions rather than blaming others.
Hanover deeply regrets the impact that this situation has had on the value of their former investors shareholding in Allied.
(Update adds Hanover's response).