KEY POINTS:
PricewaterhouseCoopers partner and leading insolvency specialist John Waller is standing by his assessment of the plan to rescue Hanover Finance.
Hanover and United Finance investors are due to vote tomorrow on whether to back shareholders Mark Hotchin and Eric Watson's debt restructuring plan for the companies or to put them into receivership.
While he would clearly have preferred to see fresh independent directors and for Watson and Hotchin to provide more tangible support than they have offered, Waller, who had a big part in preparing PwC's report on the plan, sticks by its verdict that the scheme offers investors marginally better prospects.
The Hanover report is one of Waller's last pieces of work for PwC before he finishes to focus on a string of boardroom roles including BNZ chairman and director of Fonterra.
He insists BNZ is looking to draw on his wide range of commercial experience rather than his particular skills as a top insolvency expert.
While often willing to provide journalists with background information off the record, he usually tends to shun the limelight.
Late last week, however, he chose to talk to the Business Herald to reiterate a number of points made in his Hanover report, including the key conclusion that the plan is, on balance, likely to see investors owed over $500 million get more of their cash back than they would under a receivership.
The report was published after "robust discussions" among the PwC team, "but that's our conclusion and I am firmly of that view".
The key, he says, is the support Hotchin and Watson are putting up.
Hotchin, Watson, their management and departing chairman Greg Muir are trumpeting that as $96 million. A number of commentators scoff at that figure and in its report, PwC comes across a little sceptical.
So what does Waller say? "$36 million of it is real value in our view."
The further two tranches of $10 million Watson and Hotchin have committed for later in the plan are a "contingent liability", says Waller, who believes there is a "reasonable risk" that at least part of that cash will be called on.
As for the assets of Watson and Hotchin's Axis Property group which will be transferred to Hanover, the properties have a book value of $50 million and Watson and Hotchin are attributing value of $40 million under the plan.
But work done for PwC by valuers Jones Lang La Salle suggests a range of values under that.
"Could you sell it today and get $40 million? Clearly not, but over time there will be value there."
Waller says PwC would have preferred Hotchin and Watson to contribute more support, but admits the pair do have considerable cash at risk which he believes will motivate them to ensure the plan works and align their interests with those of debenture investors.
Waller also believes investors will ultimately benefit from additional independent oversight that has been negotiated, although he would have liked to have new independent directors in place right from the start.
"Trying to find people for the role was bloody hard."
And what about the plan's "Investment Return" feature, under which, all going well, debenture investors will share in some of the upside with Hotchin and Watson? Upside that, rather than being interest on their principal, would merely go some way to replacing some of the considerable real value investors are losing thanks to the long payback time on principal.
Once again Waller's reply is consistent with the report, which spent very little time on this possibility. In fact his reply suggests that full repayment of principal would in itself be an achievement worth celebrating.
"Put it this way, if we get 100c in the dollar, then I'd go out and have a bloody good cup of tea and maybe something stronger."
He also has another reason for downplaying the prospect of further payouts, and that is simply that he does not want to build up expectations of something that may not eventuate.
It is clear that even a 100c in the dollar payout over five years, which PwC estimates is actually worth just 55c in today's money, depends on a recovery in the moribund property development market.
Given his experience in the past couple of decades, including helping clear up the mess of previous property market meltdowns, Waller's views on this are worth hearing.
"Some parts of the property market recover quicker than others," says. "If anybody says to me the market's going to pick up next year and everything is going to be hunky dory, I take them to that piece of land beside Albert St, Victoria St and Elliott in Auckland where they've got the bungy jump. That was bought in into Chase Corporation in 1987. Twenty-one years later, that site has still not been utilised, that's how long a cycle can take."
However, if some confidence returns to the general economy and interest rates stay low with consequent returns from cash on deposit dropping further, "people will look for other forms of investment including property ... markets do re-create themselves over time".
So how long before the market for lifestyle properties, like those on a Coromandel beachfront or South Island lakefront, recovers? It is plainly a loaded question given the profile of Hanover's exposure, and Waller acknowledges that before answering.
"I think it's going to take at least three to five years, but funny things happen. With our dollar falling the way it is against the US dollar there will be a number of people overseas, whether expat Kiwis or Americans or whatever, who will see very good buying opportunities in this market. So while the domestic market will take some time to recover ... we're already starting to see signs of overseas interest in some of those lifestyle-type properties."
JOHN WALLER
* PricewaterhouseCoopers partner John Waller is leaving to take up roles such as chairman of the BNZ.
* One of his last acts has been the assessment of the Hanover Finance rescue plan.
* Waller stands by the PwC report, saying the rescue package offers investors marginally more hope than a receivership.
Full details of the payback plan are available at:Hanover Finance
