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NZF likely to convert its $18m capital notes to equity

The continually embattled NZF Group will probably have to convert its $18 million of capital notes to equity, swamping existing shareholders.

Wednesday, 28 March 2012

by Jenny Ruth

NZF chief executive Mark Thornton says the company has been discussing interest payments on the notes with their trustee, Perpetual Trust.

"While the company has an excess of liabilities (including the capital notes) over assets of circa $4 million, it has sufficient cash to pay interest on the notes for at least the next 18 months if the company made no new investments," Thornton says.

The independent report on NZF's sale of 80% of its home loans division to Australia-based non-bank lender Resimac late last year indicated the company's equity would be negative $1.9 million after the transaction as at October 31. Thornton's latest statement indicates NZF's financial position has deteriorated since then.

NZF has started discussions with Perpetual as to whether a proposal on converting the notes to equity will be put to shareholders and note holders in company months, he says.

"NZF does not expect that sufficient cash reserves will be generated between now and maturity of the notes in 2016 to fully redeem them for cash, meaning that the notes will convert to equity." The notes constitute just about all NZF's debts.

Note holders who have been watching the market price of both notes and shares are unlikely to be surprised by today's announcement. The infrequently traded notes last sold last Thursday at $5.989 per $100 face value.

NZF shares last traded on March 15 at 0.6 cents, valuing the company at $659,746, indicating converting the notes will result in the note holders owning near 100% of the company.

In late November, Thornton confirmed the ability to convert the notes to equity allowed NZF to continue to be regarded as a going concern.

"With the conversion date in March 2016, this gives NZF Group a significant window of opportunity to pursue a range of investment options so any conversion can be considered at that stage in the future," Thornton said then.

Last week, the Serious Fraud Office announced it is investigating NZF Group with a primary focus on alleged related party transactions going back to 2006.

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