Investors may get only 88%

The Canterbury Mortgage Trust expects to have paid its 4500 investors 70 per cent of their principal back before July next year.

However, the rate of recovery of loans was slowing, the trust said in a letter to investors yesterday. The letter advised investors that it was paying them another 5 per cent to bring the total repayment to 65 per cent - the fourth payment of principal this year. The trust stopped paying interest several months ago.

Canterbury Mortgage Trust is winding up its portfolio of loans after freezing the $251 million of funds in July last year following a run on funds.

It said yesterday it expected to make the next 5 per cent payment before July next year, but trust chairman Don McBeath expected repayments to be less frequent in 2010 as the rate of loan recoveries slowed.

The trust warned investors in its annual report that it had made a worst-case scenario provision of $46.7m for bad loans. That meant investors might get only 88 cents in the dollar back.

However, the property market had improved since the $46.7m calculation so it still hoped to return 100 per cent of principal.

That was reiterated in yesterday's letter, which said "directors remain hopeful that full repayment of your capital can take place within the three years originally indicated - that is by the end of 2012".

McBeath said the Inland Revenue Department was not allowing it to forward tax certificates for the 2009 tax year to investors.

He realised that was frustrating for investors and particularly for the zero taxpayers who had been unable to file tax returns.

A recent meeting with IRD had made progress and the trust expected to announce something more definite in January.

The trust was set up in 2001 when a series of solicitors' nominee funds were combined. Over several years the investor base widened to become 75 per cent non-law clients.

The trust was marketed as a low-risk investment that was conservatively managed and all lending was secured by first mortgage.

But several of the major loans that got into trouble this year were advances to Christchurch property developer David Henderson or his entities.

In September the trust, through its custodian trustee company, FM Custodians, obtained a judgment in the High Court against Henderson for a sum in excess of $11m. FM Custodians has since withdrawn from a bid to bankrupt the developer.

It also lent to Andrew O'Neil, who built luxury homes but whose company went into voluntary administration.

The trust has responded to an article in The Press about the fund's general manager Graeme Main's conflict of interest in being a director and a shareholder in a company with Christchurch solicitor Clive Cousins, who is David Henderson's lawyer.

McBeath said the association had not been disclosed to the fund management company's directors.

But the board has accepted there was no intention to mislead after Main said he became a director and shareholder in the non-trading company to help a family member in difficulties.

It happened that the other director and shareholder was Clive Cousins.

"The board also accepts that any loan applications from Mr Cousins' clients were dealt with on the same basis as any other applicant."

The board asked Main if there was any other commercial association that might be of concern and he identified none.

The chairman defended the board's refusal to at times provide some information to the media where it considered that information would hurt Canterbury Mortgage Trust's ability to recover investors' money.

Canterbury Mortgage Trust said $10,000 invested in the fund at the beginning in 2001 would have returned gross interest of $6907 up to March 31 this year and $9822 if compounded.

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