Major shareholders back Dorchester Pacific's rights issue

Geoff Ross. Photo / Dean Purcell

Property magnate Hugh Green and Geoff Ross' investment company The Business Bakery will probably have to pump millions of dollars into Dorchester Pacific to get a proposed capital reconstruction plan for its subsidiary off the ground.

Dorchester Finance, which is wholly owned by listed Dorchester Pacific, is hoping to gain approval from its trustees by tomorrow to allow a recapitalisation of the business to be put to debenture and noteholder investors.

The plan, which must also gain shareholder approval, involves debenture holders swapping their stock for four different securities.

But the deal is also conditional on Dorchester Pacific raising a minimum of $8 million through a proposed $10 million rights issue.

Dorchester Pacific executive director Paul Byrnes said raising that money would depend on the support the company gained from its two major shareholders.

"They have indicated support to formally underwrite the rights issue. Without that in today's market, it would be a challenge," he said yesterday.

Hugh Green Investments and The Business Bakery each own a 20 per cent stake in Dorchester Pacific.

Byrnes said he hoped around 80 per cent of the new capital would come from the major shareholders.

Perpetual Trust must okay the plan on behalf of debentureholders who are owed $164 million while Public Trust must give the nod on behalf of noteholders who are owed $8 million before investors vote on it.

Perpetual Trust's Matthew Lancaster said it had approved the structure of the proposal but was finalising the details. He expected that to be completed within the week.

Lancaster said if the new capital was not raised the proposed plan would not be able to go ahead. Receivership would not automatically happen if the deal did not go ahead, but the reason Dorchester was pursuing the plan was because it was not confident it was going to meet its expectations under its moratorium, he said.

The securities being offered as part of the plan include units in a $33 million property trust, interest-bearing secured notes, 36.5 million in Dorchester Pacific shares and options to purchase more shares in three years at a set price.

Byrnes said the property trust would include ownership of four hotels: the Goldridge Resort and Frankton Arms apartments in Queenstown, Parkview Hotel in Riccarton Rd in Christchurch and the Emerald Hotel in Gisborne.

The properties would be parked in a unit trust and sold down over time stopping them from going to a forced sale.

The properties had all been acquired by Dorchester because the borrower got into strife, Byrne said.

"We have bought these properties to take them out of receivers' hands and got rid of the first security holders so no one panicked as a result of a loan that needed to be repaid."

June 17 has been set as the proposed date for the vote but Byrne said it could be pushed back a week if the proposal took longer to finalise.

Dorchester Finance froze repayments to investors in June 2008 and has since paid back 50c in the dollar.

Dorchester Pacific yesterday closed steady on 11c.