KEY POINTS:
Yet another finance company is in serious trouble, it emerged yesterday.
About 12,000 debenture holders in MFS Pacific Finance are wondering if they will get their money back after the company failed to meet the deadline for payments on $27 million in investments due at the end of January.
The finance company's parent, MFS New Zealand, announced to the stock exchange yesterday that it was unable to make payments because its main shareholder, MFS in Australia, had advised it late on Wednesday that it would not make funds available.
The Australian company promised to make good on any funding required by MFS Pacific back in August - a time when many other finance companies were collapsing.
In December it repeated the promise. But recent events have seen the Australian company come under huge financial pressure after its share price fell by 69 per cent in one day because of investor concern about debt levels.
MFS has been on a trading halt since January 21 and was suspended from official quotation on January 23.
It has been trying to sell off parts of the business, including its tourism arm the Stella Group, to pay for more than A$150 million ($170 million) in short-term debt.
Last week MFS said it had total debts of A$1.687 billion. A$220 million of this is due in less than three months.
MFS New Zealand voluntarily went into a trading halt on Wednesday over concerns about the uncertainty surrounding the parent company.
In its update to the market yesterday MFS New Zealand said MFS Pacific Finance had not been put into receivership but after the advice from MFS it had withdrawn the finance company's prospectus from the market and started talks with the company's trustee, Perpetual Trust.
MFS Pacific has also appointed corporate advisers to advise it on the most appropriate way forward and those advisers would also be providing reports to the trustee.
Although MFS has not withdrawn its promise to make good on the payments which has been put in place via a put option, the timeframe on when - or even if - the company can make good on the money is up in the air.
"The directors are working to clarify the position of MFS and MFS Pacific and in particular the timetable for the completion of MFS' strategic review," the company said.
As at December 31 MFS Pacific had about $300 million in debenture investments. The January payment failure is thought to have affected around 1000 investors. A further $54 million in debentures is due to mature this month and next.
Perpetual Trust chief executive Louise Edwards said it had told MFS Pacific to place all new investment money in a trust account.
She said both MFS Pacific Finance and the trustee would make further announcements next week.
MFS Pacific Finance is the 14th finance company to default on payments in the past two years.
MFS New Zealand also manages financial advisory group Vestar, which has over $1 billion in funds under management, and a second finance company, MFS Boston, which also has debentures with New Zealand investors, on behalf of the Australian company.
It said MFS had not withdrawn its financial support of those companies and the businesses continued to trade as normal.
Tangled web
* MFS Pacific Finance has $300 million in debentures owed to 12,000 investors.
* It is a wholly owned by MFS New Zealand.
* MFS New Zealand is 38.5 per cent owned by MFS in Australia.
* MFS New Zealand reverse-listed on the NZX last July.
* It also manages a range of companies on behalf of the Australian company including financial advisory firm Vestar and finance company MFS Boston.
