Mainzeal failure yet another case of poor back room governance

Mainzeal took a $22.2m hit on Auckland's Vector Arena

SHOESHINE

Unfortunately, the collapse of Mainzeal’s property and construction division will show that plenty of past lessons still haven’t been learnt.

Good corporate governance is a rare commodity in the building and construction industry, save for a few exceptions, with Fletcher Building an obvious example.

This week’s receivership of Mainzeal Property & Construction and associated entities also adds weight to the uncomfortable theory that having a former member of parliament on your board is a screaming sell signal.

Mainzeal’s problems go back more than a decade but they were always someone else’s fault, with directors quick to blame “events totally outside our control” for whatever losses were racked up.

Be it leaky buildings, 9/11, the Asian crisis or the global financial crisis, Mainzeal always had an excuse.

Little surprise then that most of the Mainzeal board flew the coop at the end of December.

Former prime minister Dame Jenny Shipley, former Brierley chief executive Paul Collins and Tauranga businessman Clive Tibby quietly slid out the door apparently at the request of Yan Ciliang, or Richard Yan as he is known in English.

Mr Yan is the founder of the Richina Group, Mainzeal’s ultimate shareholder and is the legal representative of all its subsidiaries.

He came to New Zealand from China and attended Auckland Grammar before he went to Harvard and returned to co-found Richina Group in 1988.

According to the blogger Chinesewalker, written by Shanghai reporter Xu Shuda, not much is known about Yan or Richina itself for that matter.

“There is almost nothing in the Chinese media about this corporation and few would recognise the name of its boss, financier Yan Ciliang,” Xu wrote in a March 2010 article headed Who runs Richina?

And yet the group purports it’s a really big player both here and in China – its website [now not working] describes four sectors: financial services, real estate, consumer and manufacturing.

“Richina has leveraged its New Zealand base to actively invest in and operate numerous businesses in China that have benefited from China’s extraordinary growth over the past 20 years,” the website says.

In China it operates the Shanghai Leather Corporation making leather chemicals, shoe, leather garments, luggage and athletic balls.

Here in New Zealand there is the Mainzeal real estate arm and Richina Finance, a finance company that it says has the objective of securing a full banking license that will “attract depositors from China who wish to diversify their offshore financial holdings but will focus its lending activities onshore in New Zealand”.

But apart from the website spiel there is no real transparency in the group.

Richina has always flown under the radar, even when Richina Pacific was listed on the NZX up until 2008.

Fortunes boosted
In 2001 the company’s fortunes were boosted by the sale of its major New Zealand assets, Mair Venison and Colyer Mair.

That followed a strategic review where the company decided, “the best long-term interests of the company would be served by focusing on those businesses which had the potential to be world market leaders.”

Those happened to be based in China rather than New Zealand, raising the question of the Shoeshine of the time of Richina’s future on the local sharemarket, especially as its major investors are also based overseas.

The company was originally controlled by a group of US investors, known as the Richina Consortium. This broke up in 2002 but many individual members kept their stakes.

Following the sale of Mair Venison and Colyer Mair, Richina was left with its China assets and its construction subsidiary Mainzeal.

In early 2005 NBR reported that Richina Pacific shareholders should start demanding answers about the performance of Mainzeal.

Its last six annual reports showed an average profit margin for Mainzeal of 1.2%. On the back of a booming construction market Mainzeal received $2 billion in revenue from 1999 to 2005 and turned just $21 million of that into net profit.

How long would it last?
The question was asked: if Richina struggled so much to make money from construction boom times in its New Zealand comfort zone, how long would it last in the cut-throat world of Chinese property development?

Perhaps the receivership of Mainzeal Property and Construction answers that question today.

When global credit markets froze in 2008 Richina decided to take itself private through an amalgamation transaction.

The problem was not all shareholders got paid out at the 45c a share price at the time, leaving about 800 shareholders trapped.

The company reportedly decided to try and “help them” by listing on the Unlisted market and buying out shareholders “under certain conditions.”

But not a single share was traded in 2009.

Today there are still more than 100 of those shareholders on the Richina share register.

In a statement from the receivers of Mainzeal Property and Construction, Mr Yan apparently advised that lack of shareholder support was one of the reasons for receivership.

Shoeshine can only wonder how that will go down with those who are left holding Richina share parcels, especially given that they probably haven’t received any correspondence from the company in two years.

Shoeshine runs every week in the new-look print edition of NBR.

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20 Comments & Questions

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This doesn't have anything to do with the fact they were being sued for building leaky buildings?

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There is no substitute for experience. Management and common sense do not come out of a computer. Construction is a people skill business where only the competent should venture.

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Too many professional directors these days have grown up with white shirts on. They don't understand the industry beyond having been a middle manager pushin paper when they were younger. Truth is we have breed a whole generation of managers that think they know how to manage a budget but know nothing about the industry except what they have seen from behind their computer screen.

Simply, I suspect the manager and directors of this company knew nothing about construction or building.

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Absolutely correct.. in so far as no real/hands-on industry experience. Also there are some real skills only ever acquired when you've your own money in the game. Most of these directors are ex corporate lackies.. never risked ther own money on anything but the family home !

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Incorrect. I read recently that SOME but not ALL directors were held responsible in relation to a finance company falling over. The Government's regulator in that case (Capital Merchants Finance) only charged some directors because it (not a Court) determined only some should not be held accountable. Not charged was a director who is the favourite of the Government. My prediction is Ms Shipley will not be held accountable - for the sake of Genesis. She probably is innocent int he sense of being clueless at Mainzeal and the Government has set precedents already for cluelessness being just fine or perhaps even mandatory for its appointees. The Government cannot have one set of standards for some SOE directors and another set of standards for others.

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Hi Bob.Good comment.When i was a young residential builder i ran into the likes of Peter Menzies who ran Mainzeal.A priviledge to know him an much admired.So why now all this Crapola.My God.There was no such thing as a leaky building in my day 30 years ago.Tradesmen well trained.You would always cover a probelm before anyone ever got to know about it,because of our upbring an pride would take first place.What on earth is happening to my country.Have they forgot the art of common decency.Please ,let go back to old fashion values an we will be a nation of leaders an respect that we have always had..

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staggers me 40 jobs on the go company making no money cant even get out of o/d digusting once again we lose out.

were is the direction why are they pricing jobs so low something needs to change now not later

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The responsibility for this rests with the Board as a whole. I think this is another good example of extremely poor Governance and Directors parading as Directors but without the skills or capabilities

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In 2010, Shipley was asked by a reporter if she was familiar with Mainzeal's Ebit. She replied, in a huff, "I know more than just a bit; quite a lot, actually".

What does that tell you?

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Darcy, surely you are joking, aren't you?
If this is true can you please give us a 2010 reference to check it out.

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And then when asked about the probability of dividends, was heard to say 'I don't bet with TAB'

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If the Directors were not very knowledgeable about the business or were negligent or reckless with how it was run then they will be prosecuted for the losses. Are the FMA or SFO investigating the collapse and the Directors yet?

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I am a Richina shareholder and I confirm I have not heard anything from Richina for two years. How does Richard Yan get away with this?

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.....because he operates in the New Zealand regulatory environment.

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I think you have missed the boat. The current owner deregistered the company some years ago.

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I'm sorry to say that kiwis need to have a hard look overall of where we are an what direction we are going.Does anyboby ever understand that if overseas buyers are paying big dollars for farms an land,and building companies Then that is what they are worth,so why sell in the first place An why are banks so quick to pull the rug..We all know real estate is driven by willing an able buyers .Willing to pay the price an able to service the mortgage.Supply an demand tossed in.Real estate is our national worth.we should have as to hold type attitude an we would be better off for it.

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Then stop borrowing from overseas to fund your living standards.

You think New Zealanders can do that?

If not, shut the heck up.

Losers, the lot of you. Wanting things you cannot afford and after borrowing, wanting to abdicate responsibility.

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Until govt/Reserve Bank correct their wrong interest rate policy we will be beholden to overseas interests.
As has been pointed out frequently, the Reserve Bank, encouraged by govt, sets interest rates at a low level that encourages borrowing and discourages saving.
Once this policy is reversed we can start to save in earnest and start to build some domestic investment capital, a prerequisite for economic growth.
But do our "leaders" understand this? What do you think?
liberte

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Given recent world events, it's clear New Zealanders are not the only ones who have been doing this.

However, New Zealand also needs to take on board some of the longer-term thinking other countries are using to protect their own local interests. E.g. China - ownership of land should be limited to permanent residents and citizens; company ownership should have local percentage or joint venture levels mandated.

New Zealand is too quick to leave its future up to the whims of overseas shoppers, with no regard for the future well-being of the country. Investment in the country should be contingent in having a stake in the long-term betterment of the country, not just in short-term returns.

We know and accept this in business terms (i.e. Agency Theory), so why can't we appreciate it in macroeconomic terms?

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Thats right, have lived in the UAE and now living in China. In the UAE you can buy property but you can never become a citizen and to run a business you need a local to sponsor you.(so who do you think makes money?). In China business is all about who you know and tightly controlled to the advantage of the Chinese.
Business in New Zealand (particularly the banks) should be regulated to put most of their profits back into NZ, and then they have to manager their vested interests in NZ not overseas. The German economy is still very strong with a manufacturing base and higher wages than here, we should be looking their model and the Scandavians as to what we could do. Possible have incentives for them to set up long term businesses here. I'm sure they would rather settle here than VW has China because they can rely on a smart labour force, do not have to worry about BS red tape etc.
Also, yes, give them incentives to become NZ citizens.

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