New Zealand nonbank finance company freezes investor funds as sector collapses

Wed, Jul 23 02:53 PM

WELLINGTON, New Zealand (AP) _ New Zealand's third largest nonbank finance company, Hanover Finance Ltd., froze investor funds Wednesday, citing the collapse of the industry for halting its business.

"Against a backdrop of global credit uncertainties, falling property prices and lower reinvestment rates, the industry model has collapsed," said Mark Hotchin, joint owner of the company with Eric Watson. The nonbank finance company is New Zealand's 24th to face serious difficulties in the wake of the subprime mortgage crisis in the United States.

Citing a slump in the domestic property sector, Hotchin said his board also had suspended capital and interest repayments, as well as investments with Hanover Finance subsidiary United Finance Ltd., and sister company Hanover Capital Ltd.

"The market has moved a very long way in a very short time. I would never have dreamed we would be in this position six months ago," he said.

Earlier this year, Hanover Finance had about 16,000 investors with 554 million New Zealand dollars (US$419 million) in debentures. United Finance had some 2,400 investors with NZ$65 million (US$49 million) in debentures, and Hanover Capital, offering secured preferential bonds, had about 1,100 investors with NZ$24 million (US$18 million) worth of bonds.

A rapid decline in the property finance market and a dramatic fall in reinvestment rates have been cited as the causes of the sector's rapid slide. Nearly NZ$2.5 billion (US$1.9 billion) of investor cash has been caught up in failures in the nonbank sector so far.

Hotchin said the company's board was "acting early to preserve value" as market conditions continued to deteriorate and uncertainty mounted over borrowers' abilities to repay. "Alternate financiers are increasingly unwilling to step in, and we're also now starting to see borrowers trying to take advantage of the uncertainty to delay payments further compounding the situation," he said.

The company could still meet its trust deed obligations and had a financial capacity to trade, but directors were working on a plan to restructure the business. "Given the future uncertainty for the industry and the impacts now being felt by even the most well-established finance companies, we believe it is prudent to act early," Hotchin said.

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