“Low ball” offers to investors in failed Strategic Finance are perhaps not as far off the mark as their detractors might think.
Receivers for Strategic have released their latest six monthly report to the Companies Office, stating an estimated recovery of 12 to 35c in the dollar of the principal amount outstanding to secured debenture holders owed $367.8 million.
That compares with a recent 5c unsolicited offer from Australian-based Stock & Share Trading Company to buy debentures from investors.
John Fisk and Colin McCloy of PricewaterhouseCoopers said they were now confined to managing Strategic's loan book after offers to buy it fell short of "even our low” estimate of gross recoveries.
The best outcome was therefore for the receivers to continue to realise the loan book, they said.
“We note that one of the offers also provided for some possible future upside, however, based on the information provided, we considered that any potential upside may be difficult to achieve and so could not be relied on in our overall assessment."
Reasons for low bids to buy Strategic assets included the high proportion of second mortgage positions and the complexity of loan participation arrangements.
The major property loan book consists of 87 loans made to borrowers either directly through Strategic Finance or through Strategic Nominees or Strategic Nominees Australia.
Approximately 58% ($131.4 million) of the net loan book is secured by second mortgages, the receivers said.
Strategic’s directors are Kerry Finnigan, Graham Jackson, Jock Hobbs, Marc Lindale, Denis Thom and David Wolfenden.
This week the Securities Commission warned all debenture-holders in Strategic Finance to be wary of another offer by Stock & Share Trading Company to buy their debentures for five cents in the dollar.
The commission urged investors to be cautious of any unsolicited offer to purchase their investments, especially where the offer "is well below face value" and seek independent, professional advice before making a decision to accept any offer. (See Sec Com guidance here)
PWC emphasised in its latest report there were still considerable uncertainties relating to the recoverability of Strategic’s property loans, many of which were for development land and bare land subdivisions, including in Fiji.
“We consider that the “high” range estimate reflects some optimism in the level of loan recoveries, particularly in respect of SFL’s four largest loan exposures.
“Any difficulties in respect of the recovery of these four loans will have a significant adverse impact on the overall level of recoveries.”
PWC said it was working co-operatively with the liquidator of Strategic, John Cregten of Corporate Finance.