Hanover - the agony goes on and on

The hotly debated issue of how much money Hanover owners Eric Watson and Mark Hotchin have actually stumped up to help cover investor losses should be clearer when we finally get to see the company's annual accounts for the year to June 30.

Apparently that is not far off now - although the fact that it has taken nearly five months to get the numbers into some shape that auditors KPMG can sign off tells us something about the state of play within the dismal remains of the finance company.

It is a complex and messy business at best with loans outstanding on developments which, in some cases, are stalled or yet to even get started.

But, sadly, in the end the exact amount is not going to greatly change the financial situation of long-suffering investors.

The unfortunate 13,000, now owed about $500 million, were promised 100 per cent of their principal investment back over five years if they agreed to a moratorium for the company rather than calling in receivers.

Based on the opportunity cost of not having that money to invest elsewhere, that promise translated to a likely net present value of just 55c in the dollar.

This week they have found that they'll get only 70c in the dollar of their principal investment. Based on the precarious state of the high-end, high-risk market where most of Hanover's property investments sit, there is a good chance that figure will deteriorate further.

Last year investors ignored advice from media commentators like Brian Gaynor and Bruce Sheppard and voted (overwhelmingly in the end) to leave control with the Hanover owners rather than call in receivers.

The $96 million that Hotchin and Watson said they would tip into the company was no doubt a big influence on investors.

Another big influence was an independent assessment of the moratorium by PricewaterhouseCoopers which concluded it was a better option than receivership.

PWC's John Waller said it was a close call but that the money Watson and Hotchin were tipping in would mean a few cents in the dollar more for investors that would not be there for receivers.

Waller wasn't naive about the Hanover promises. He dismissed the notion that they were really contributing $96 million, ascribing little or no value to the $40 million property component. But there was $36 million of real value in their proposal, he said.

He was also cynical about the claim that they could return 100 per cent of the principal over five years. He estimated a likely return to investors after restructuring of between 63c and 80c in the dollar.

In that respect his assessment still looks reasonable. And even his view that the moratorium was a better bet may still stack up if it is proven correct that Watson and Hotchin have put in the money they said they would.

But at this point, with so many questions left unanswered by the company, you would have to say there was a price worth paying for the extra certainty and accountability receivers would have brought to this restructuring.

Overpromising and underdelivering will do nothing for investors but draw out their worries and disappointment for a full five years.

The only possible upside is to delay and dilute the public fury that further financial losses bring and buffer what is left of some tattered reputations.

Effectively, the amount that Watson and Hotchin have paid out of their own pockets has been just enough to avoid seeing the company and all its complex accounts and convoluted transactions thrown over to independent receivers.

They - or their spokespeople at least - always argued that they sought to retain control because they were best placed to trade the business back into shape. As the situation for investors goes from bad to worse, that argument gets weaker and weaker.