Anger at release of harsh report

BY EMMA BAILEY

Allan Hubbard has reacted angrily to a damning report which says he has overstated his company's value by millions and made poor investments, leaving investors likely to face losses.

Yesterday's second report from statutory managers Trevor Thornton and Richard Simpson warned the more than 300 investors in Hubbard Management Funds (HMF) that the value of the investment company was thought to have been overstated by at least 25 per cent, while investors in Aorangi Securities may suffer a loss, but will get a small payment in October.

The 10-page report outlined what had been learnt since June 20, when Allan and Jean Hubbard, their company Aorangi Securities and Hubbard Managed Funds, along with seven charitable trusts, were placed into statutory management by the Government.

Christchurch investor Tony Brazier said investors needed reassurance from Mr Hubbard, but he was not surprised by the news. "It is early days – we need to know if this is just an interpretation or there has been sloppiness. I am still a fan of Hubbard and pleased there was no mention of fraud."

Timaru retiree Margaret Cowan said she was not worried about her investment, based on what she had heard about the report, having not yet received it. "We all know he has his own way of doing things."

Taupo man John Funnell, who helped set up the Hubbard Support Trust for distressed investors, said the report had not surprised investors.

Mr Hubbard would not comment directly yesterday morning and told the Timaru Herald to "just bugger off".

In a statement later in the day he said he was not consulted nor had he received the report and therefore could not comment on it. The Timaru Herald did supply him with a copy in the morning.

"Not to have had the courtesy of a copy before its release, let alone the opportunity to review it, is very disappointing," Mr Hubbard said.

"Five weeks ago I submitted a proposal to the statutory managers and Registrar of Companies in respect of the Aorangi and Hubbard Managed Funds investors and they haven't even given me the courtesy of a response to that proposal.

"I have to say that I am very disappointed that while they have continually told me to refrain from speaking about these issues in public, which I have respected, the statutory managers ambush me in the media in this way."

 

The report felt like a personal attack, he said.

"Jean and I don't need this at our age and we should not be treated in this way.

"Why are the statutory managers releasing this report at a critical stage in the life and survival of South Canterbury Finance? I think they just don't get it."

The report was expected to upset investors, Mr Thornton said.

"As statutory managers, we are aware that this news will be a shock and a disappointment to the many people who have invested in these businesses operated by Mr Hubbard.

"In the case of Aorangi, an underlying problem we are dealing with is that Mr Hubbard has allowed Aorangi to accept deposits of about $96 million from investors on call, but he invested those funds in investments or loans which are nearly all long term in nature.

"Much of the money is invested in minority interests in approximately 25 farms as well as in a charitable trust administered by Mr Hubbard and a number of other commercial entities, some of which are of poor quality. These investments do not generate sufficient income to pay the interest due to Aorangi's investors. Many of the farming businesses invested in are highly geared, the dairy farm sales cycle is currently at a low, and in the case of the charitable trust, many of the loans are interest free and some will not be recoverable."

A further progress report will be sent to investors at the end of next month.Rangitata MP Jo Goodhew said she had not been privy to details of the report. "It is a shock and will obviously cause concerns for investors."

KEY FINDINGS

Hubbard Management Funds:

The statutory managers' work was substantially complete and the total value at March 31 was at least 25 per cent less than the $82 million reported by Mr Hubbard.

Shares and other investments in excess of $13m which do not exist have been allocated by Mr Hubbard to investors within the HMF portfolio.

Shares and investments of $8m owned by HMF had not been allocated to investors.

Uninvested funds on hand of $6m has been reported to investors by Mr Hubbard as at March 31, however the cash available on that date was less than $350,000.

Aorangi Securities:

Investors will get a small capital payout in October but there will be no significant returns this side of Christmas.

Statutory management was expected to continue until the end of the year.Losses were likely if the managers felt it was necessary to sell a number of farming investments at the same time or at the wrong point in the seasonal cycle, in order to meet investor demands.

A gap had emerged between Aorangi's income from its loans and investments and the amount it needs to pay out to its investors.Investors had injected $96m and Mr Hubbard was said to have $34m of equity in the company.

Aorangi has invested approximately $130m in the following: $83m in farming entities ($59m in farming businesses associated with Mr Hubbard and $24m in first and second mortgages over land); $24m in Te Tua Charitable Trust; $23m in other commercial entities.

By September a shortfall of $1m was expected with only 17 of the 51 farming loans and investments able to meet their full interest obligations. $1m equates to half the amount required to service Aorangi interest payments.

Farming business partners have been approached to see if they are interested in buying out Aorangi's interests.

Mr Hubbard had promised that his investment in Aorangi could be used to help offset any potential losses. This is yet to be formalised. Managers felt Mr Hubbard would be unable to support Aorangi as he had in the past.

Te Tua Trust was unable to make its interest payments to Aorangi for its $24m loan and has had a substantial reduction in the overall value of its investments.

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