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What's happening at MFS?

Friday, February 1st 2008, 11:06AM 15 Comments

by Philip Macalister

What is happening at MFS in New Zealand? Is it the end of the line? Yesterday the company had its shares suspended from trading on the NZX and it appears that the company has gone into lock down mode. We know advertising has been pulled and it is unclear whether the company is accepting money. From what I hear it needs to. The story we hear is that Vestar placed a reasonable sum of clients’ money into 30-day debentures with MFS Pacific and rolled these over each month. However, yesterday Vestar told MFS Pacific it wasn’t rolling over the investments at the start of February, therefore MFS Pacific had to redeem the debentures. Trouble is there is no money in kitty and its request to its Australian parent, which also has its shares suspended from trading, was given a firm no. That’s not a surprise as it is currently trying to sell assets to sort out debt issues. If this version of events is correct it raises the odd situation that the combined businesses are shooting themselves in the collective foot as Vestar is owned by MFS in Australia. Personally I hope MFS doesn’t follow other finance companies into collapse as it had some good plans for New Zealand and it appeared to have been run much better than some of the dodgy crowds which collapsed. This is the version of the story we have heard – if you can shed any more light on the matter please let me know.
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Comments from our readers

On 1 February 2008 at 9:59 pm Bob Dylan said:
It is a tricky situation indeed. MFS NZ has been pretty strong since its inception a couple of years ago. With lots of people trying to get there money out it does become difficult to continue to fork out the cash. I think one way they could work it is to stop paying interest and just pay people back the cash as it becomes available. Perhaps a 100 day freeze on payments and interest could buy them some time to work out a way to get through this difficult period.
On 3 February 2008 at 11:56 am The Lone Ranger said:

A read of the various Australian newspapers together with an examination of the financial statements on the NZ companies website suggest that we have a rather difficult situation at hand.

It is essential that receivers be appointed to MFS Pacific Finance Limited in order to protect the interests of the debentureholders.

In selling these investments to the public, much was made of the fact that that MFS Australia would assist MFS NZ, but that has not happened.

To a reader of MFS' financial statements, this is bizzare, as on the face of it, the "Put Option'' appears to require MFS Aust to assist if requested by MFS NZ.

However, without access to the formal document, no further comment is possible.

Anyone sighting a range of Vestar portfolios would have noted its heavy support for MFS Pacific Finance Limited.

If, as suggested in the media, Vestar withdrew its support for MFS Pacific, that gives little cause for joy among investors.

Bob Dylan's comments are naive.

There is no evidence that MFS NZ has been ''pretty strong'' since its inception. I would suggest that courtesy of certain financial planners it has been able to obtain a large amount of debenture stock.

A properly managed financier should not be embarrassed by a ''Run on Funds'', and at no stage should investors in a fixed interest investment be asked to give up interest payments.

Investors invest in fixed interest investments because they are seeking low risk investments with an assured income stream.

It has become fashionable in recent years for investors to use "financial planners'', many of whom come from an insurance background, and are sales focused.

This has resulted in many unfortunate results for investors.

On 4 February 2008 at 7:45 am Lambton said:
Phil alluded to it - why did certain insiders pull the plug on support of its associate company knowing that the parent was in turmoil and unlikely to be able to help out thus inflicting a mortal wound on its sibling.
Is there a game in play?
On 4 February 2008 at 9:21 am The lone Ranger said:
The only game I can see is that Vestar have according to an Auckland media report had client portfolios with up to six companies which are in receivership.
Now they are faced with yet another portfolio company in difficulty.
They have to draw a line in the sand somewhere in regard to their client base.
May I venture to suggest that the value of the Vestar portfolio as an asset of MFS Aust might be tending to decrease in value.
On 4 February 2008 at 11:01 am Lambton said:
But isn't MFS Pacific's problem one of lack of liquidity, not problem loans?
Vestar chooses not to rollover client funds for another month, surely knowingly, forcing its sibling onto the slippery slide.
Or are the problems (non performing loans) larger than publically announced?
On 4 February 2008 at 1:13 pm another halt said:
another trading halt for MFS - doesn't sound good.
On 4 February 2008 at 3:40 pm The lone Ranger said:
In reply to Lambton,why should such a company have a liquidity problem if it has competent management ?
The recent commentary in the Sunday times in regard to its most recent and as as yet unpublished financial financial statements,do not give cause for optimism.
I suggest a read of the financial statements to 31 March 2007 on the Companies website as an interesting starting point.
The amounts incurred in put option fees,marketing,loan,brokerage,service and administration fees are interesting.
In addition,as we have learnt,loans to related parties do not always result in assets which are able to be liquidated for their book values.
On 4 February 2008 at 4:09 pm Lambton said:
Lone Ranger, you are probably right. However it still seems extreme for one associate to knock over the other unless there are ulterior motives. The cynic in me says it wasn't for altruistic reasons.
On 4 February 2008 at 7:11 pm Charlie said:
It appears to me that the "Put Option" has been working back to front, what is going on when MFS Pacific buy $22million worth of bad debt from an associated Aus company at BOOK value, some of the debt 3 years out.
This looks like they are using MFS Pacific to help falsely make the profit of the Aus company respectable. I assume that MFS Pacific would have later onsold the bad debt to another associate to "fix up" their profit. Looks like Ariadne Judge & co all over again.
On 5 February 2008 at 9:11 pm The lone Ranger said:
Charlie's comments appear logical.Investors think their investment in these types of companies is straight forward,but inevitably there is the spider web complexity of related party transactions to deal with.Once again,the investors are not being rewarded for risk.
On 7 February 2008 at 6:16 pm The Lone Ranger said:
Today's article mentioning the Fortress Loans coming due for repayment next month by MFS Pacific is scary,as it is clear that there will be no funds available from the sale of MFS' travel section for some months.What is the directors' responsibility for not taking advantage of the ''Put Option'' ?.With all the directors being Aussies,and most of the funds spirited to aussie,it sounds like the likely status of NZ investors in Aussie owned banks--looked after behind Aussie interests.What a shambles.Why didn't MFS have the decency to sell 100% of its travel arm,rather than only 65% ?.Does the MFS co-founder really need five polo fields ?
On 11 February 2008 at 9:30 pm The lone Ranger said:
Today's NBR article will mean the demise of MFS in NZ.
When Vestar clients have portfolios consisting of Provincial,Bridgecorp,Property and Finance Securities,Capital and Merchant Finance and MFS Pacific,how can Vestar hope to actually retain any clients.And what is going to happen to Cymbis and the offshoot trusts from Capital and Merchant ?
On 11 February 2008 at 9:35 pm The lone Ranger said:
''Consisting''should read ''partially consisting''.
On 21 February 2008 at 3:25 pm Captain Speaking said:
"Oh what a web we weave, when we set out to deceive". Who said Ned Kelly was dead when you have the likes of Vestar, and the Directors of Bridgecorp, Capital Merchant and MFS. Liars, thieves and conmen - the lot of them.
On 27 February 2008 at 11:37 pm Red Dog The Pirate Guy said:
The latest NBR makes for sick reading.
It was inevitable that MFS Boston would be frozen at some stage,but with the sale of MFS' financial interests in Aussie coming to a halt,will MFS Pacific Finance become another 20 % return of capital as Bridgecorp is destined to be for some investors ?
And a question for you all,or for admin to consider.
Few investors would have asked their ''planners'' to disclose their commision trail when entrusting their one or two million dollars to their care.
If they now ask for this to be disclosed,is the planner required to tell them,or is the query able to remain unanswered.''
Commenting is closed



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