A letter to Hanover bondholders
Just a word to the wise. Allied Farmers was one of the companies the New Zealand Shareholders Association wrote to earlier this month about its debt levels as of 2008.
They are worse at June 2009. This is a company that has its own issues. Read the letter we wrote to Allied and the chairman's reply on www.nzshareholders.co.nz.
In respect of NZSA's analysis of debt positions the worst company on our list was Provenco, which is now broke. The second most vulnerable was Allied. Nuplex and Fisher & Paykel Appliances were better than Allied.
The deal between Hanover and Allied announced this week is extremely complex and will require considerable analysis to understand the impact on the various parties who stand to be affected. These are Allied, Hanover shareholders (Eric Watson and Mark Hotchin) and Hanover debt holders.
On the face of it is a godsend for Allied. It gets some cash in return for a huge dilution of existing shareholders interests. For Allied $20m is a lot of money; it tried to raise $7.5m from its own shareholders this year and failed.
The NZSA is a shareholders association and in December last year -at the special meeting [where you voted on the moratorium] - Hanover bondholders told me very clearly they wanted nothing to do with the NZSA and even less to do with me. That's your call.
I will, however, give you two pieces of advice. The first is relevant to all investors including my members so those who had a bet with me in December and said I wouldn't be able to help myself, please understand.
Grant Samuel is going to write a report to Hanover bondholders. Independent reports are a feature of most major transactions that shareholders routinely have to vote on.
Grant Samuel writes a lot of these reports and I am yet to see one published that recommends shareholders ignore the board's recommendations. Enough said.
Now the second bit of advice. The media, or the fourth estate, is an important part of a free society and a democratic process.
A robust financial press likewise. Journalists get paid to investigate and report so the intelligent writers should be given some encouragement by investors. These include the likes of Brian Gaynor, Rod Oram, Jenni McManus, and Gareth Vaughan. There are others coming through. There is also myself and the NZSA, and outspoken sharebroker Chris Lee.
Now back to the bondholders. I am now getting many emails and phone calls from Hanover bondholders, as well as borrowers.
I am getting calls from insiders complaining of what has gone on. I am taking the latter calls. You do have to take what whistleblowers say with a grain of salt. But when you get enough of it you get a flavour.
However, I will not take any calls or respond to any emails from Hanover bondholders who are not NZSA members. So do not expect me to give you any guidance on this transaction and don't expect me to attend another meeting of bondholders.
Just by way of background, it was the entire NZSA board that sweated your December meeting. John Hawkins waded though three reams of paper to analyse the deal you voted for, and our very informed view is that you were completely nuts. This Allied deal will be even more complex and I do not intend to put the NZSA through this exercise again for nothing.
So Hanover bondholders here is a challenge for you. Join the NZSA, download the forms off the NZSA website www.nzshareholders.co.nz, send them to my attention at Box 6310 Wellesley Street, Auckland. I will sit on any applications to join until 400 out of the 13,000 of you have joined. If 400 of you join, I will commit the NZSA time to reporting to you on the issues you have to consider in this latest offer. It will not be a recommendation as we don't do that, it will be a list of issues.
And on the face of it, there appear to be many.
If less than 400 join, I will write to you all and tell you that and ask if you still wish to join. If you don't, I will return your membership application form and cheque to you.
It's up to you.
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Hi Bruce,
Any Hanover creditor listening to moaning report this morning would have heard your reported opinion on the "deal". I agree, however its not my money they are losing so its easy for me. The sunlight test needs to be put on the whole shoddy arrangement particularly prior to the collapse. Constantly reading about the owners and their parties and houses leaves one cold - not too mention the questions not asked due to the moratorium vs receivership on fiduciary duty, related party loans, auditing and trusteeship etc.
I note Boston Finance is the latest to tip into receivership from moratorium. What oh what is our Securities Commission doing. The credibility of our financial system is under pressure because we fail to fully investigate when this sort of thing occurs because it "falls outside the parameters of their jurisdiction". If this is not within our appointed watchdogs jurisdiction then what is the point of having them.
Chris Lee - intelligent writer ?
Hi Bruce
I looked at joining NZSA but if I read correctly membership is only open to those who own shares? OK, we have Hanover debentures but no shares.
So what is the story?
John
Bruce, I questioned your antics when you showed up at the moratorium vote last year. It is now a few months on and we all have some new perspective. Whatever people feel about Mark Hotchin they should really try to stick to the facts and the fact is the moratorium was a dud and Hotchin is very skilled at looking after himself. Nothing particularly wrong with that. The moratorium only benefitted him and Eric Watson. It avoided a receiver or liquidator being appointed who could challenge and recoup the 10s if not 100s of millions of dividends paid out to these lads; it removed their obligation to repay a bunch of related party debt by tansferring the over-valued assets to which that debt related into Hanover and then cyncially calling it a contribution of additional capital; and it gave them 5 year interest free money from the debentureholders so that if a miracle did happen and the company survived and asset values were restored, guess who got the benefit. In the 10 or so months since the moratorium vote it defies logic to say asset values have dipped. That was already the low point. And yet here we are being told of massive write-downs etc curiously at exactly the same time as the Hanover Board agrees to a deal to push poor debentureholders into some other rubbishy deal. And guess who the major beneficiaries of that deal are yet again? Negotiations for such a complex deal must have been going on for some time. Where was the Trustee? where was Price Waterhouse who were charged with overseeing the moratorium they endorsed? Where were the independent directors while this little ambush was being cooked up? Did they know about it? When? What were they doing? Were all of them sitting on their collective rear ends collecting fees out of the debentureholders asset pool? Part of the pitch made by Greg Muir and Mark Hotchin was the degree of independent oversight going forward and yet here we are waking up just a few short months later being told in the space of 2-3 weeks first that the directors now expect 70c or less in the dollar recovery of principal, followed closely by the directors having agreed to sell the debentureholders assets to anoher entity converting secured first ranking debt instruments into last ranking equity in a company here the major assets by far will be the Hanover assets albeit depleted by those that Hotchin and Watson are being allowed to keep as part of the same deal. To be fair you can understand Hotchin and Watson looking after themselves. But it doesn't mean we have to support this. Bruce, I do not need to know the fine print of the deal or join the NZSA to know that any vote on this deal should be a "NO". The company should be placed into immediate liquidation or statutory management.
I am an investor in hanover and all I can say to other Investors in this company is if you vote for this deal between Allied and Hanover.You will "NEVER" see your money again. Instead of Hanover collecting on their loans and paying out to you. Allied will be collecting the loans and paying out to "THEMSELVES". It's as simple as that. If this goes through,I will be writing off my money as lost.The shares that you get issued will be worthless. They will drop to nothing the first day that they list.I know this because I had to swap half my investment with Geneva finance for 36cents a share. now worth 7cents and never looking to go up.Ask yourself, Why would anyone want shares in a Finance company. I strongly advise any Hanover investor to reject this rotten deal. Lets make Hanover pay us back like they said they would.
Another attempt to boost the membership of the NZSA I see...
A couple of points...
1 - Contrary to Bruce's assertion there have been independent reports that have gone against the Board's advice in the past. Not many to be sure, but they have been written. Just so you know the Institute of Finance Professionals (INFINZ) in its annual industry awards has an award for Independent Report of the Year - this is awarded by an expert judging panel, I beleive. Someone is watching the independent report writers...
2 - Just because a transaction is complex doesn't mean it is a bad transaction. The deal is good for Allied and good for Hotchin/Watson (although more for avoiding future commitments than anything else). it is worth nothing that because the deal is good for Allied it must inter alia be good for Allied's shareholders, which would appear to be the same investors who Bruce is saying the deal is bad for.
The fact is that if the deal goes through and a Hanover investor rushes to sell their shares then they will do their money; no question about that. but if they hang on as shareholders for the same period of time that the moratorium would have run for then they could very well do better.
it is rather a question for the future.
Boris the Frog is mostly right but in one respect is guilty of exactly the type of thinking that has dropped Hanover's investors in it for so long. He says that if Hanover investors take the bait and vote for this deal and then "if they hang on as shareholders for the same period of time that the moratorium would have run for then they could very well do better." It is the type of argument that is impossible to refute because they could also very well do worse and because they can only do one or the other (vote yes or no to the deal) and no one will ever be the wiser. It is purporting to hold out "hope" to the otherwise "scared". That's an emotional response that Hanover is probably relying on - it was the fear of receivership that they used the first time around to scare us into voting for the dumb moratorium. I'm not falling for it again. A deal like this can only be assessed on its merits in the here and now and Boris the Frog is spot on when he also says if "the deal goes through and a Hanover investor rushes to sell their shares then they will do their money; no question about that". That is the right point in time to measure this deal. Right now Hanover (who may well want investors to be fearful so they grasp at the Allied deal) are telling them they could now only get 70c in the dollar. But the investors still are first ranking, still have theoretical oversight and recourse via the trustee and Price Waterhouse and can hold Hotchin's feet to the fire. Under the Allied deal their shares, as B the F says, will get smashed, they own the same assets (less $10m in cash and whatever else has been left behind) but rank last and have bugger all oversight, control etc. The papers today reported $10m plus some other assets are being left with Hotchin and Watson as part of the deal. That is the real story here. Any assets "left behind" are assets that should go to Hanvoer debentureholders. Anything else is insult to injury.
I'm not a Hanover or finance company investor but I decided to sign up to NZSA anyway. I've been meaning to do it for a while now.
Bruce
Like you I couldnt believe that the Hanover investors voted for the moratorium at the time. I did think you were being a little harsh on the investors. Its their money.
However after reading the comments from Greg / Borris, I can understand why you took your stand and im 100% behind you. there is only so much you can tell Lemmings.
Political meddling with property has never worked
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All very fair sounding to me. I just feel extremely sorry for the Hanover bondholders who voted against the proposal put by the executive at Hanover the last time. I reckon the ones who voted for it should have had to indemnify or buy out the ones who voted against it. Perhaps if we had such sensible policies in place for such crisis events - the lambs might not be so quick to head to the slaughter simply because the excutioners are handsome young men in tailored suits and silk ties.