Hanover posts $102.9m loss, writes off $308.9m

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Hanover Finance has posted a $102.9 million net loss after writing $308.9 million off the value of its assets and its shareholders' funds have been completely wiped out.

Tuesday, November 17th 2009, 11:02AM 6 Comments

by Jenny Ruth

Sister company United Finance is in a somewhat better state but still posted a $24.4 million net loss after writing $29 million off the value of its assets.

The Hanover accounts, delayed by "the ongoing challenges of the economic environment" and by the need to comply with the International Financial Reporting Standards (IFRS), show Hanover's net assets, and therefore shareholders' funds at June 30 were negative $38.1 million compared with positive $64.9 million a year earlier. United's net assets at June 30 were a slim $161,000, down from $24.7m a year earlier.

The two companies, which are owned by entrepreneurs Eric Watson and Mark Hotchin, said last week they no longer expect to return all the capital owed to their debenture investors, who stopped receiving any interest from June 30 last year.

Directors now forecast Hanover investors will get 70 cents in the dollar while United investors will get about 90 cents in the dollar. That includes the $10 million put up by the companies' shareholders which is so far undrawn but held in escrow. Subordinated noteholders of both companies are unlikely to receive anything.

Hanover's accounts show the write-offs have brought it closer to the point at which the trustee for the debenture holders may call in the receivers. Under its debt restructure plan (DRP), its adjusted total tangible assets must remain above 60% of the $445.3 million it owes the debenture holders.

At June 30, Hanover's total tangible assets ($285.9 million plus a $57.8 million IFRS adjustment) were 77.2% of the money owed investors.

The accounts show property-related loans to Watson and Hotchin-controlled companies rose to $57.8 million at June 30 from $44.2 million a year earlier while a working capital loan to Hanover's Australian subsidiary rose to $60.2 million from $49.3 million a year earlier.

Hanover's auditors, KPMG, have tagged its accounts with "fundamental uncertainties" clauses which explain the accounts don't take account of what actions the trustee may take if the company defaults on the DRP's conditions.

"Should the trustee appoint a receiver to the company, adjustments may have to be made" to both Hanover's assets and liabilities, KPMG says.

Hanover's directors comment on the "rapid deterioration in the commercial property development market of recent times" and say there is "a disconnection between property valuations and the perceived market value of assets," which made compiling the accounts difficult.

The ability of those to whom Hanover has lent money to repay has become increasingly uncertain and future action of other secured lenders who rank ahead of Hanover "cannot be foreseen with certainty," the directors say.

"These are extremely challenging times but we continue to focus our efforts on achieving the best result for investors in light of the circumstances," they say.

The accounts show a complicated series of related-party transactions and subsequent sale of a property resulted in a $76,400 realised loss at September 30. Also, on August 4, Hanover bought property from a company controlled by Hotchin and Watson for $887,000. No valuation details were provided.

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