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St Laurence Ltd today became the second major finance company within a week to strike major trouble.
Heavily involved in lending to property developers, it said today it had stopped lending ahead of a likely default.
It will attempt to put in place a scheme where its 9000 debenture holders, owed around $240 million, would only get repaid in instalments while still making interest payments.
This time a week ago, Dominion Finance Holdings announced its finance trading companies had liquidity problems and it wanted a moratorium on repayments for the $276m it owed debenture holders.
St Laurence is the 19th finance company in a year to get into strife and the 22nd in just over two years, affecting nearly $2.5 billion of investor funds.
Louise Edwards, chief executive of Perpetual Trustees, trustee of both Dominion and St Laurence, said more trouble lies ahead.
"I'm sure we haven't seen the end of it yet," she said.
St Laurence has pulled its prospectus and has slim prospects of raising fresh capital.
Chairman Kevin Podmore who owns 75 per cent of St Laurence through Auguste Investments, which he jointly owns with property investor Mike O'Sullivan, told NZPA St Laurence was not yet in default but that was highly likely if things remained unchanged.
Nearly all its loans were in arrears as property developers had met a near complete dearth of buyers.
Its reinvestment rate had plummeted into the teens from around 64 per cent before March.
Trustee Perpetual Trustee had been informed of the actions and "in principle had been happy with us to proceed down this track".
Ms Edwards wouldn't comment on when Pertetual knew St Laurence was in trouble. Perpetual was monitoring its trustee finance companies closely, some on a daily basis, she said.
Shares in publicly listed Dorchester Pacific, which last year paid $30m for a quarter stake in St Laurence, fell 2 cents to 31 cents. Hugh Green Investments and Auguste own 40 per cent of Dorchester which just under a year ago was trading at $1.75.
Although St Laurence said today's decision did not affect St Laurence Property & Finance, confidence in the sector, particularly those exposed to property developments, were dented like a speedway car.
Chief executive of one rival, who declined to be identified, said it started with the collapse of Bridgecorp, and took a hit with each major collapse along the way.
However, he said his company had managed its book more aggressively and only around a third of loans were past due. His firm's reinvestment rate had not fallen into the teens.
Mr Podmore said St Laurence's lenders right across the board had been late payers as buyer demand had evaporated.
St Laurence decided the inability of borrowers to pay loans on time combined with the low reinvestment rate meant a strong chance of default.
"We've looked at it and in all likelihood we are going to run out of money. We need to ask our investors' assistance to buy time to ensure that we can collect our loans in full."
St Laurence lends mainly first and second mortgages to property developers in main centres and on the east coast of Australia.
Mr Podmore said while developments were proceeding, buyers were few and far between and developers, expecting to use St Laurence only as a bridging financier were struggling to find alternative sources.
Less than a month ago St Laurence Ltd reported its March year net profit was $12m, down from $14m last year, although it actually made an operating loss of $4.8m. St Laurence Property & Finance Ltd reported its profit rose 22 per cent to $28.5m but that included property valuation gains of $16.5m.
As well as the debentures, St Laurence had $60m equity. It has $170m of loans outstanding.
The company is also a fund manager with contracts to manage St Laurence Property & Finance and National Property Trust.
It also has around $100m of syndicated investments that it manages and in most cases, St Laurence takes a financial interest in the companies that it manages.
It owns all of St Laurence Property & Finance, but many investors have invested in St Laurence Ltd through mandatory convertible notes that are due to convert to St Laurence Property & Finance shares in December and will dilute St Laurence's interest to 30 per cent.
- NZPA
