KEY POINTS:
Almost half the money New Zealanders invested with finance company St Laurence has gone into big Australian real estate deals.
Helen Mexted, St Laurence's general manager of funding and corporate services, yesterday provided a candid description of where investors' $240 million had been invested and said 45 per cent had crossed the Tasman.
Of the money raised in debentures, Mexted said $176 million was loaned for property projects by March 31 and $64 million was invested in St Laurence subsidiaries. Since then the loan book had declined slightly.
The single biggest loans by dollar value were for Auckland residential and mixed-use developments in various stages of completion, Mexted said.
But the market had become extremely difficult.
"It's an unusual market to be operating in, and borrowers are finding it tough. We've got a credit crunch. Funding is more difficult to secure and investors have become a lot more cautious," she said.
That combination of circumstances spelt trouble in at least half the loan portfolio.
Mexted gave both a sector and geographic spread of properties on which St Laurence has loaned the money, saying $30 million was loaned for two Auckland projects yet to be finished.
A $15 million loan was provided on an Auckland residential land bank where a housing subdivision was planned, and the other $15 million was for a mixed-use Auckland retail, residential and office development. Next biggest was a $12 million facility for a commercial project in Auckland.
St Laurence loaned A$10 million on a Wollongong property, she said. The project is understood to be the A$320 million ($404 million) deal by Belmorgan Group for the large Gravity mixed-use development. Mexted could not give details about specific clients.
"Standing between the CBD and the beach, the completed development will contain a supermarket, discount department store, restaurants and cafes, food court, an eight-screen cinema complex, specialty retail, commercial office space, a 200-room four-star international hotel and conference centre, a tavern and 55 prestigious residential apartments," St Laurence says on its Australian website.
St Laurence, the 23rd finance firm to run into trouble in the past two years, has $160 million of loans outstanding on a wide spread of real estate on both sides of the Tasman.
The Wellington-headquartered business took urgent steps on Tuesday to stave off a default. It will not lend any more or raise further money from the public.
Kevin Podmore, majority owner and managing director, said about half the loan book was in arrears and the firm was being squeezed because re-investment rates had plummeted. Developers were proceeding on subdivisions, but there were fewer buyers in the market, he said.
Developers were also having problems finding alternative sources of finance, leaving St Laurence holding non-performing loans.
Around 9000 debenture holders might now have to wait two years for repayment of the $240 million owed, after St Laurence said it would seek to pay back debenture holders in instalments.
The St Laurence bombshell came less than a week after Dominion Finance, with about $286 million of investors' money, announced plans for a moratorium, citing liquidity concerns.
Podmore owns about 75 per cent of St Laurence through Auguste Investments, a joint venture with Mike O'Sullivan, who founded the business but has taken less of a public stance than Podmore in the last few years.
Listed Dorchester Pacific owns the remaining 25 per cent, which it bought last year for $30 million.
St Laurence, which has more than $1.2 billion in assets under management, owns part of sister company St Laurence Property & Finance.
Podmore said the decision to pull back on borrowing and lending would not affect St Laurence's bond or mandatory convertible notes businesses.
In addition to its debenture raising, St Laurence has also dragged in millions to buy properties by issuing bonds in real estate-owning syndicates. These are vehicles for small-time investors to own large commercial, industrial and retail properties.
One senior banking official said all second-tier lenders were struggling "massively", and the situation was dire.
People had suddenly begun to realise that property was an extremely non-liquid asset class, impossible to sell in harsh economic times.
The debenture-issuing, second-tier lenders were suddenly in an impossible position, trapped between an investor exit and non-performing loans, he said.
When lenders called in these loans via mortgagee or forced sales, the amount recovered was pitiful, endangering the survival of funders, he said.
SHOW US THE MONEY
Investors' $240 million in St Laurence was loaned like this:
SECTOR SPLIT
(to March 31):
29% residential developments
28% commercial property
19% residential subdivisions
16% commercial development
6% special use (owner-operator businesses like retirement homes, student accommodation)
2% residential stock, finished houses
GEOGRAPHIC SPLIT
(to March 31):
45% Australian projects
31% Auckland properties
18% elsewhere in New Zealand
6% Wellington properties
