Hanover warns of trust deed breach

Receivership seen as alternative to Allied proposal

DAVID HALLETT/The Press

PAYING ATTENTION: Some of the Hanover Finance investors listen to details about the deal with Allied Farmers at a meeting in Christchurch yesterday.

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Hanover Finance may breach its trust deed and be placed in receivership eventually.

Hanover Finance independent chairman David Henry gave this warning to 150 investors in Christchurch yesterday at a briefing over the proposed deal with Taranaki's Allied Farmers.

"The independent directors [of Hanover Finance] consider if the DRP [delayed repayment plan] continues potentially in the future there will be a breach of the trust deed which ultimately will lead to receivership," Henry said.

It was no longer possible for Hanover to repay investors fully. The new 70c in the dollar repayment forecast for debenture holders was based on a hard look at all the company's loans.

If 17,000 investors in Hanover Finance, Hanover Capital and United Finance reject the Allied proposal, the delayed repayment plan – "the moratorium" voted for last year – will continue.

Asked how close receivership was, Henry said it was not likely in the immediate future. Hanover expected to make the next payment to investors scheduled in late December. But if the Allied proposal won the necessary votes, the payment would not be made, Henry said.

Investors' questions reveal they are weighing up the likelihood of getting back 70c in the dollar in the next five years if they stick with the moratorium against receiving 72c worth of shares in Allied if they back the deal.

The price for the Allied Farmers shares will be based on the share price in the five days before the vote on the deal on December 16. Yesterday the Allied shares closed at 27c. If that was the price set, then Hanover debenture investors would receive 2.6 Allied shares for every 100c of their investment in Hanover.

But shareholders questioned if the Allied shares would hold their value and said if Hanover investors rushed to sell the shares to get some cash back, the Allied share price would fall.

Allied managing director Rob Alloway said they could not say if the shares would go up or down after the deal.

Allied chairman John Loughlin said there was no doubt the Hanover loans were "challenging", but his firm was in a better position to realise their value through sales and other means, than Hanover in a weaker sales position in a moratorium.

Hanover has $10m in cash and an investor asked why it could not be paid to them. Henry, appointed in April, said that was "a safety net" if the loans that were sold did not return the amount agreed to pay investors each year. If the deal goes ahead, Allied Farmers will get the $10m in cash and the interest.

Investors said a certain amount of scaremongering existed over receivership. One said he was not sure investors realised they were first in line for Hanover's money in receivership.

Another investor said a lot of people were elderly and did not have the time to wait for the Allied shares to rise in value. Henry replied that under the moratorium most of the money owed to investors would not be paid back until year 4 and 5 anyway. Another said that they were being asked to vote "blindfolded" because investors knew little about the loans or their potential value. Henry said confidentiality protected investors and the value of the loans.

Asked when Allied would resume paying dividends, Loughlin said it had come through hard times this year and he could not give any timing for resumption of dividends but it would be "as soon as possible".

Another shareholder said he was interested in the deal but he was getting older and he believed investors were being optimistic if they thought they would get 72c worth of value from the Allied shares.

Yesterday Perpetual Trust, the trustee for some of the investors, said there were significant risks for investors whichever way they voted. Allied's financial position had been "varied", and its outlook was not certain. It was a complex deal and a big departure from what investors had originally invested in.

- © Fairfax NZ News