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Hanover posts $102.9m loss, writes off $308.9m

Hanover Finance has posted a $102.9 million net loss after writing $308.9 million off the value of its assets and its shareholders' funds have been completely wiped out.

Tuesday, 17 November 2009

by Jenny Ruth

Sister company United Finance is in a somewhat better state but still posted a $24.4 million net loss after writing $29 million off the value of its assets.

The Hanover accounts, delayed by "the ongoing challenges of the economic environment" and by the need to comply with the International Financial Reporting Standards (IFRS), show Hanover's net assets, and therefore shareholders' funds at June 30 were negative $38.1 million compared with positive $64.9 million a year earlier. United's net assets at June 30 were a slim $161,000, down from $24.7m a year earlier.

The two companies, which are owned by entrepreneurs Eric Watson and Mark Hotchin, said last week they no longer expect to return all the capital owed to their debenture investors, who stopped receiving any interest from June 30 last year.

Directors now forecast Hanover investors will get 70 cents in the dollar while United investors will get about 90 cents in the dollar. That includes the $10 million put up by the companies' shareholders which is so far undrawn but held in escrow. Subordinated noteholders of both companies are unlikely to receive anything.

Hanover's accounts show the write-offs have brought it closer to the point at which the trustee for the debenture holders may call in the receivers. Under its debt restructure plan (DRP), its adjusted total tangible assets must remain above 60% of the $445.3 million it owes the debenture holders.

At June 30, Hanover's total tangible assets ($285.9 million plus a $57.8 million IFRS adjustment) were 77.2% of the money owed investors.

The accounts show property-related loans to Watson and Hotchin-controlled companies rose to $57.8 million at June 30 from $44.2 million a year earlier while a working capital loan to Hanover's Australian subsidiary rose to $60.2 million from $49.3 million a year earlier.

Hanover's auditors, KPMG, have tagged its accounts with "fundamental uncertainties" clauses which explain the accounts don't take account of what actions the trustee may take if the company defaults on the DRP's conditions.

"Should the trustee appoint a receiver to the company, adjustments may have to be made" to both Hanover's assets and liabilities, KPMG says.

Hanover's directors comment on the "rapid deterioration in the commercial property development market of recent times" and say there is "a disconnection between property valuations and the perceived market value of assets," which made compiling the accounts difficult.

The ability of those to whom Hanover has lent money to repay has become increasingly uncertain and future action of other secured lenders who rank ahead of Hanover "cannot be foreseen with certainty," the directors say.

"These are extremely challenging times but we continue to focus our efforts on achieving the best result for investors in light of the circumstances," they say.

The accounts show a complicated series of related-party transactions and subsequent sale of a property resulted in a $76,400 realised loss at September 30. Also, on August 4, Hanover bought property from a company controlled by Hotchin and Watson for $887,000. No valuation details were provided.

Comments from our readers

On 17 November 2009 at 11:31 am June Aslett said:
So, we've worked hard and scringed and saved all our working lives for this!!!!
It's utterly disgusting and Hotchin and Watson should be joining the suffering investors and their families, now with poor and uncertain futures
On 17 November 2009 at 1:52 pm Graham Passau said:
Bankrupt them,and sell all their assets,personal and commercial. Distribute to the investors,and whats left, if any, to them.
On 17 November 2009 at 3:09 pm Margaret Hills said:
You cannot believe a word of what Hotchins and Watson say. The company lied about their financial state before it was frozen and still we are getting lies. It is time they were put into receivership or bankrupted so we can see the exact extent of their unsavory behavior. I think a protest of investors outside the Hanover offices
is a good way to start shaming this pair. Forget Bond & Bond and Noel Leaming Watson sold them a few years back !!!
On 18 November 2009 at 12:18 am Steve Gardner said:
Watson & Hotchin have operated what amounts to a Ponzi scheme, just like petricevic and roest from bridgecorp. And yet these people are still walking around free. Maddof in america has been jailed. what about these people?
On 18 November 2009 at 7:58 am C.L.Digby said:
It appears that Hanover is still lending to Watson and Hotchin companies as well as buying 'toxic' debt ridden assets from the same two. The mind bogles at those stupid shareholders who agreed to this at the 'Moratorium' meetings.
On 28 November 2009 at 9:37 am Kevin said:
nz is definately not a land of fair and equitable business dealings , this is just another example of big business pilaging and looting the average hard working , trusting , innocent kiwi. All under a smokey {but legal system } . The politicians and accountants/lawyers should be absolutely ashamed of themselves for being part of and condoning this evil behavior . When are we ever going to have an honest system? or is it always going to be the fat cats rule ? no wonder people can't get ahead while the bludgers prosper. The same goes for all the other corrupt political deals going on within this country (too many to mention here).
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