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| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 1st October 2006 | Controversial finance company Bridgecorp Holdings, banned from raising further public funds in Australia, would appear to be seeking more cash on this side of the Tasman.
It was selling loans to its own vehicle, Compass Capital, and was reportedly trying to sell loans to third parties.
It was a matter of record that Bridgecorp had used New Zealand investors' money to help prop up its Australian operations. As at July 7, the company's New Zealand subsidiary, Bridgecorp Ltd, had advanced the Australia-based holding company a total of $52.1 million in debt and in buying Australian loans.
The New Zealand company said it did not expect the Australian operations would need further support but has reserved the right to provide it.
Bridgecorp founder Rod Petricevic, who agreed to answer questions in writing, said the company was "comfortably meeting all commitments as and when they fall due."
In August the Australian Securities and Investment Commission gained court orders restricting Bridgecorp Holdings from raising further funds in that country by way of unsecured notes.
While the New Zealand subsidiary's support of its parent is clearly spelt out in an amendment to the company's latest prospectus, the prospectus includes only the subsidiary's financial accounts - not those of the parent company.
The parent company's position was worse than that of its Kiwi subsidiary last year.
The New Zealand company had $81.9 million in shareholders funds supporting liabilities of $474.2 million. However the parent company had only A$44.1 million in equity supporting A$616.8 million in liabilities.
Issuing prospectuses containing only a subsidiary's accounts was common in New Zealand.
But the potential for investors to be mislead by this was something the Securities Commission was looking at. Primary markets director Kathryn Rogers says it was considering regulatory changes.
She said the rules should require the inclusion of a parent company’s accounts if they were material to the risks investors were asked to bear.
Petricevic says adding further financial details to the prospectus "would make an already lengthy and complex document less readable."
The situation left the door wide open to `conduit lending', where a relatively financially healthy company raises funds for use by a less healthy entity.
Bridgecorp has another New Zealand subsidiary, Bridgecorp Investments, whose sole purpose was to raise money to invest in the main New Zealand subsidiary. As well, in May, Bridgecorp established Compass Capital to buy loans from the main New Zealand subsidiary.
Bridgecorp's New Zealand investors may be interested to read the Compass prospectus. It said the company could lend only up to two-thirds of the valuation of a property development. That would mean that if Bridgecorp sold Compass part of a loan which was more than two-thirds of valuation, Compass would get the best quality security and Bridgecorp's New Zealand investors would be left with worse security than before the sale.
Bridgecorp founder Rod Petricevic, who agreed to answer questions in writing only to avoid being misquoted, says the company has been issuing debt securities in New Zealand for more than 10 years and has never missed an interest payment or failed to pay a maturing investment on time.
Petricevic says he is "very happy" with the uptake of the Compass offer and that it has bought five loans worth $13.5 million from Bridgecorp so far.
Meanwhile most of the finance industry appears to have heard the rumours that Bridgecorp is selling loans to third parties. One of the strongest rumours is that the company has sold loans to Strategic Finance. Chief executive Kerry Finnigan wouldn't confirm this. ``I'm not at liberty to discuss relationships I have with various clients,'' Finnigan said, but added that Strategic and Bridgecorp do have ``shared clients and shared arrangements.''
Among other likely buyers, John Callaghan at NZ Finance Holdings said that while he had heard Bridgecorp was selling loans, he hadn't been approached. "Logically, the type of business they do is not really our cup of tea."
Kevin Podmore at St Laurence says that after hearing the rumours he approached Bridgecorp himself but hasn't bought any loans to date.
Petricevic says it is "normal course of business for finance companies to work together on deals" but says he won’t comment on rumours.
And sources tell the Herald on Sunday that Bridgecorp's 20 per cent stake in Dorchester is on the market. However if the company sold at this stage it would make a large loss - it paid $4 a share for most of the stake, and Dorchester's shares were trading last week at $2.15.
Petricevic says that although he has had expressions of interest in the stake, he isn’t interested in selling at the current price and "we believe that there is considerable upside in this investment."
Petricevic and Bridgecorp are no strangers to controversy.
Bridgecorp was a shell company in 1993 when Petricevic gained a controlling stake and turned it into a finance company specialising in short-term loans for property development.
Petricevic, a former partner of Sir Michael Fay and David Richwhite, founded Euro National which listed in 1985. Euro National posted a $255 million loss in 1998, the year he resigned from the board and sold out.
Bridgecorp Holdings, a public but unlisted company, has been rejected in at least two attempts to join the New Zealand Stock Exchange and Petricevic is on record as blaming this on his past. Bridgecorp shares, which trade on Unlisted, have fallen from 55 cents a year ago to 20 cents last week, valuing the company at $13.6 million.
It appears the company also failed in an attempt to join the Australian Stock Exchange.
Prior to the August court order, the ASIC put stops on the company's Australian prospectus in June last year and in February this year, after the $515 million collapse of the Westpoint retail and apartment development in Melbourne which Bridgecorp had lent to. Bridgecorp said in March its exposure was $30 million and its partner in providing second mortgage funding, Hanover Finance, said in mid-September the development had been completed and that it expects to get all its principal and some interest back.
Petricevic confirms that is true for Bridgecorp too and that the first mortgage ranking ahead of his company and Hanover is due to be repaid within a week.
ASIC is also requiring Bridgecorp to repay existing noteholders as their investments mature.
Bridgecorp Holdings' latest available accounts for the year ended June 2005 give some clues as to how much this might amount to - although it doesn't include money raised since then.
The company had A$38.8 million in capital and unsecured notes due to mature before June 30 this year. In addition, it had a further $351.2 million in debentures and notes maturing before then in New Zealand. | | You can buy a transcript of the interview behind this column ($5) or subscribe to a year’s worth -- 48 interviews ($100) by emailing: info@jennyruth.com | |
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