Dorchester plan pros and cons set out

Dorchester executive director Paul Byrnes. Photo / Greg Bowker

A proposed capital reconstruction plan by financial services company Dorchester Pacific has merit, PricewaterhouseCoopers says in an independent expert's report but it does disagree with the Dorchester board on some issues.

In December 2008, Dorchester investors voted in favour of a deferred repayment plan.

At that time the company had $163.7 million of secured debenture stock and $8 million of subordinated notes on issue. As at March 31 stockholders had received payments amounting to $81.85 million - half their principal investment.

But since the start of the deferred repayment plan, Dorchester had property loan losses that were not anticipated in initial forecasts, resulting in a deterioration of net assets and shareholder funds.

Updated financial forecasts suggested a risk Dorchester would be unable to meet scheduled commitments, including one this month.

In response Dorchester proposed the capital reconstruction plan, which is to be put to a vote of investors in Auckland on June 30.

Under the plan four new securities are to be issued to debenture stockholders in return for their outstanding debenture stock.

Those securities are units in a unit trust holding four hotel properties, $20 million in aggregate of three-year secured interest bearing notes, shares in Dorchester, and options to acquire further shares.

The plan is also conditional, among other things, on Dorchester raising a minimum of $8 million of new capital in a $10 million capital raising.

PricewaterhouseCoopers said that provided certain key success factors materialised, including favourable market conditions and the achievement of group operating forecasts, stockholders could potentially recover a significant portion or all of their original investment.

But it had identified several matters where it disagreed with the opinions or assumptions made by the Dorchester board in forming the reconstruction plan.

One of those issues was that the plan offered stockholders shares equivalent to 50 per cent of the total shares in Dorchester before the rights issue, but in its view 50 per cent seemed low, PricewaterhouseCoopers said.

Another was that under the plan any operating losses in relation to the properties in the unit trust would only be underwritten by Dorchester in the first year of the plan.

- NZPA