Rates Round Up

Credit Sails costs investors; Payments delayed for Lombard investors; Dorchester cuts loss on end of year adjustments; Non-banks suffer from weak market.

Monday, 18 May 2009

by Paul McBeth

Credit Sails notes cost kiwis $91 million
Cayman Islands-registered Credit Sails has told its New Zealand investors the $91 million they poured into its bond issue is effectively gone.

Investors in the convoluted bond issue that relied on momentum notes will see a return $11.96 for every $1,000 the put in - a loss of almost 99% on the bonds called Credit Sails first issued in 2006.

The collapse of an Icelandic bank last year kicked off the troubles for Credit Sails, which were effectively a collateralised debt structure, and wiped 71% of their value.

More than 1500 New Zealanders invested in the notes, with 56 of these putting in $100,000 or more.

Payment delayed for Lombard investors, IRD lines up claim
Secured debenture holders with Lombard Finance & Investments may have to get in line behind the Inland Revenue Department, which has yet to file its claim with the company's receivers, while a payment to investors expected to be made in March has been delayed.

Receivers John Fisk and John McCloy of PricewaterhouseCoopers told investors the delay was due to the IRD's ongoing audit of the company's dealings.

Any claim made by the IRD takes precedence over all other claims.

Dorchester cuts loss on end of year adjustment
Dorchester Pacific will record a reduced loss of around $25 million after a $30 million gain in fair value adjustment lifted its bottom line.

Executive director Paul Byrnes said the additional property loan provisions weren't anticipated at the time of approval of the Deferred Repayment Plan, and "reflect a more negative view taken by independent valuers of the current market."

Byrne reiterated the objective of the plan is to carry out an "orderly realisation" of the company's assets, and avoid a fire sale.

Its subsidiary, Dorchester Finance, purchased the Goldridge Hotel in Queenstown for $8 million, and later bought a mortgage from New Zealand Guardian Trust for NZ$6.3 million for a hotel property on Riccarton Road in Christchuch. Byrne said they've made good progress on the exposure to their hotel properties.

Weak property market and economy weighing on non-bank sector
The Reserve Bank said non-bank deposit takers are struggling to adjust to the requirements of the new regulatory regime as the weak property market and domestic economy highlight the heavy exposure of some finance companies.

A significant number of non-banks have taken part in the the government's deposit guarantee scheme, the central bank said in its financial stability report.

Savings institutions, like building societies, credit unions, and the PSIS, were generally well-capitalised, but a number of other companies needed to strengthen their balance sheets to meet the new prudential regime's standards.

The bank is concerned some international non-bank lenders, such as GE Money, have withdrawn from New Zealand, preferring to rely on wholesale funding overseas. 

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