Strategic now owes $452m: receiver

Government to be informed of any law breaches found as investigation continues.

Strategic Finance owes $452 million, higher than originally thought.

Initial estimates had been made that the company once headed by former All Black captain Jock Hobbs owed $417 million.

But yesterday John Fisk and Colin McCloy of PricewaterhouseCoopers released the first letter to 13,000 investors of the failed business which is New Zealand's second-largest finance collapse after Bridgecorp's $459 million meltdown.

They showed the scope of Strategic's debts to its mainly elderly, retired investors was climbing and now stands at $452 million.

About 10,000 secured debenture investors are owed $367.8 million, 950 subordinated note holders are owed $21.8 million and 65 unsecured depositors are owed $1.5 million.

But interest payable on stock, deposits and notes now stands at $54.7 million and Strategic has other liabilities of $6.2 million, PWC announced.

By February, it had just $4.9 million in funds on hand, insufficient to enable any payment to be made to even secured debenture investors, PWC announced.

The receivers also referred to investigations being made, saying they would notify Government authorities of any potential law breaches.

"Where our investigations identify any actions which may be taken by the receivers directly, such actions will be pursued based upon an assessment of the legal position and may include court action," PWC said.

To generate money, Australian and Asian investors are now being sought to buy Strategic Finance's $229.1 million loan book.

The wider PWC network in Australia and Asia was being contacted to find potential buyers for Strategic's 87 loans, the receivers said.

They cannot say how much money investors will get back until negotiations to sell that loan book are concluded.

Indicative offers are due mid-June.

Most of Strategic's debt is subordinated, ranking behind other lenders and leaving the investors in a bad position. PWC listed the types of loans and the ranking of those loans in the update.

"Approximately 58 per cent ($131.4 million) of the net loan book is secured by way of mortgage with a second-ranking priority over the underlying property.

"On these loan book assets, prior ranking debt totals some $544.4 million. There are some loans that are secured by mortgage with a third-ranking priority," the letter said.

The property market was not improving but continued to be challenging and volatile, particularly for development land and bare land coastal subdivisions, PWC said.

"Borrowers continue to face difficulties in achieving sales or refinancing of the property. The lending undertaken by (Strategic) is primarily secured over development land. In the majority of these cases, there are prior ranking shareholders and further development funding is required to compete the development."

PWC also noted how Strategic engaged in capitalising loans, enabling borrowers to suspend repayment indefinitely.

"On most of the loans, interest accruing is added to the loan balance and received on repayment of the loan as opposed to interest being paid to Strategic on a monthly or quarterly basis," PWC said.



STRATEGIC FINANCE

Where the money went:
* Auckland 33 per cent
* Overseas 27 per cent
* Northland 14 per cent
* Queenstown 13 per cent
* Other 13 per cent

How the money was loaned:
* Commercial development 38 per cent
* Housing development 24 per cent
* Housing subdivision 23 per cent
* Other 15 per cent

Source: PWC letter to investors