KEY POINTS:
Dominion Finance Holdings says it will write off goodwill and intangibles to the tune of $26.6 million.
The company also said today it had increased to $80m the level of bad debts and provisioning from $17m announced in May.
It is holding out the possibility that debenture holders and banks could be repaid in full, but said that was not guaranteed.
Without some form of recapitalisation capital note holders and shareholders were unlikely to see a return, unless underlying asset value recuperated significantly during the next two to three years, Dominion Finance said.
The move to write off goodwill and intangibles was necessary after a recapitalisation proposal was not approved.
In June the company said it was considering a moratorium on payments to debenture holders after becoming concerned about the liquidity of its two subsidiaries, Dominion Finance Group and North South Finance.
At March 31, debenture holders were owed $276 million. Last month the directors said trustees for the stockholders of Dominion Finance Group and North South Finance were not satisfied with a proposed recapitalisation plan.
Today Dominion Finance said that when unaudited interim results were announced in May, bad debts and provisioning totalled $17m, but very shortly after the demise of asset values accelerated beyond expectation.
"Having regard to current market conditions, we have now increased the level of bad debts and provisions substantially to $80m."
In addition, under new accounting rules, the company had to account for future interest flows and discount them, with that interest written back over the recovery period.
"This non cash effect is neutral over time but severely impacts these accounts and has added $25.5m to the loss, and reduced finance receivables by the same amount," Dominion Finance said.
"While the increased provisioning is severe, the non cash item impacts of the intangibles $26.6m, interest impairment allowance $25.5m and off balance sheet unrecognised deferred tax asset of $28.6m has further reduced the financial position of the business.
"Based on recovery of the discounted interest in line with loans being recovered, no further detrimental market changes and the remaining part of the unimpaired loan receivables (circa 45 per cent) performing as planned, then debenture holders and banks may be well be repaid in full (although there is no guarantee)."
A cost review was under way, and cost savings had been made exclusive of one-off restructuring costs of about $2m a year.
"The board has no choice at present but to try and secure agreement for the orderly wind down of the subsidiaries, exceed the loan recovery estimates, and look for ways to improve the return to capital note holders and shareholders."
Dominion Finance also said it had provided NZX with its 2008 annual report.
- NZPA
