NZF Group is in talks with its trustee Perpetual Trust about converting its capital notes into shares in the second such debt for equity swap proposal in the last year. NZF doubts it will generate enough cash over the next four years to repay its $18 million of listed debt when it matures.
The financial services company, which is also subject to an investigation by the Serious Fraud Office over related party transactions, said its liabilities exceed its assets by about $4 million. It only has sufficient cash to pay interest on its listed debt for the next 18 months if it doesn’t make any new investments, it said in a statement.
“The company has started discussions with the trustee (Perpetual Trust Limited) regarding the payment of interest and a conversion to equity, and whether a proposal will be put to shareholders and note holders in the coming months,” the company said.
NZF bonds sparked consternation among some investors last year when NZF decided against redeeming the notes for cash. The firm gave debt holders owed $20 million the option of rolling over their notes at a lower return or convert their cash into shares.
About 90 percent of bond holders rolled over their debt into the new notes, paying 6 percent per annum, compared to 9.25 percent. These are the bonds NZF now fears it will be unable to repay and is seeking to convert to equity.
The value on the bonds has plunged, with the most recent trade on Friday at $5.989 for every $100 bundle.
The shares were halted before the start of trading today at 0.6 cents apiece, valuing the company at $660,000.
Last week, the SFO said it has opened an investigation into a range of transactions between members of NZF, its directors and officers from July 2006 to the present.
The investigation was announced as NZF entered the final phase of selling a majority stake in its home loans unit and securitisation operations to Australian non-bank lender Resimac. The deal was touted as a means to recapitalise the ailing firm, and received shareholder approval last month.
In 2009, Resimac, which is controlled by Infratil director Duncan Saville, courted penny-dreadful stock Allied Farmers, which unsuccessfully took on the Hanover and United Finance loan books. Resimac later backed away from investing in Hawera-based Allied.
NZF also has to contend with a claim it breached the terms of its Mike Pero Mortgages joint venture, with partner Liberty Financial lodging High Court proceedings last month.
NZF said at the time it plans to vigorously defend all claims. NZF has also said it has no knowledge of related party transactions that could be subject to the SFO investigation.