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Now the hard work for Hanover

Wednesday, December 10th 2008, 9:46PM 4 Comments

by Philip Macalister

It’s no surprise to me that Hanover’s investor voted for the proposal. The restructuring plan, roadshow and meeting were the easy bit. Now the hard work starts. Recovering loans and repaying investors. Hanover’s front people, shareholder Mark Hotchin and chief executive Peter Fredricson, have set themselves an ambitious target of returning 100c in every $1 invested. The biggest factor in achieving this goal, and keeping the promise to investors, is what happens with the property market. Should they have a favourable tail wind earlier, rather than later, then the job gets easier. The trouble is they don’t know what the conditions will be like. One thing in their favour is the time frame. They have five years, with the bulk of repayments to investors, scheduled in the last couple of years. By then New Zealand’s property market should be well through its cycle. A couple observations from the meeting. One of the themes of the day, particularly from so-called shareholders’ champion Bruce Shepherd, was about the possibilities of litigation against the shareholders (quite ironic, really). It was interesting that Shepherd wanted special treatment and the ability to ask more than one question plus one supplementary (the ground rules laid out by the chairman at the start of the meeting). The chairman enforced his rule and Shepherd put his request to the audience, who turned him down. I do get the impression that Shepherd has lost some of his mojo these days and wonder if it is time the Shareholders’ Association finds a new front man? (BTW: He gave an interview on NewstalkZB after the meeting which was incredibly condescending to investors and said he wanted nothing more to do with finance companies and their investors - ever again. I see there is a similar piece here). There was much debate about taking legal action against the directors, particularly over the dividends paid over the past couple of years. The idea being that this could recover a greater sum for investors than the restructuring plan. My observation is that very few of these cases are ever that successful for investors. The time, cost and complexity of such action is prohibitive. Investors were better to take the money offered from shareholders and get on with running the business. Another theme was questions asking Hotchin why his Waiheke and Paratai Drive properties were not part of the deal. In the end he did admit Waiheke was in and he indicated that many other assets were being pledged which suggested he has personally put a fair bit towards this rescue package, when he could have just walked away from the company and let it fail. My other observation from the meeting and the roadshow, is about ceo Peter Fredricson. I first met him when he ran Tower Managed Funds. During these meetings he has been impressive: Frank and honest. Seeing a guy like this being prepared to back the plan gives me a level of faith that Hanover will succeed.
« The difference between Hanover and INGMore questions to ponder about credit funds »

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Comments from our readers

On 6 January 2009 at 11:36 am Keith Wellington said:
I was fool enough to be taken in by Hanover's statements about how well the company was doing, even as recently as late 2007 when Same Stubbs (then of Hanover) did a road show stressing the value of the Fitch rating, and how the business would scale back to cope with reduced investment funds. Unlike 93% of the other investors I voted against the restructure as it simply will NOT return 100 cents in the dollar. The architects of the mess are running the restructure. Go figure.

The Fitch rating was not worth the paper it was written on, nor the confirmation of it 3 months before Hanover froze funds. Only after the funds were frozen did Fitch react.

The Axis company being transferred to Hanover/United is a liability, not an asset.

Watson did not have the courage to face investors, but stayed outside the country.

As for Mark Hotchin, who sat through the entire road show I attended chewing gum, I reserve my judgement for a later date to see if he is as good as his word and doesn't do a "runner".

An investment I had maturing in mid June 2008 was rolled over without my sanction and has become locked into the restructure in spite of my asking for it to be paid out before the 23 July funds freeze.
On 22 January 2009 at 6:40 pm Albert Kwok said:
One mistake investors made when voting in favour of Hanover's re-structuring plan is that they did not include one clause into it, that is:

Eric Watson & Mark Hotchin to put back the $200M (if I got the figure correct) they have taken as dividend over the last 2 years. Directors and managers should be remunerated if they perform well for their shareholders and investors, however, given the situation of Hanover, have they managed it well? Steve Job, for example, took only a $1 pay due to Apple's poor performance.

If one is so sincere in "helping" or "concerned" about their investors, don't you think they would have put back the monies they have taken undeservely? Even if the two of them have put back the $200M, they will still have many millions behind them, and they would have paid back investors 40% of their capital already. Think about it.

To put it in another way, if investors had given me just $50M (10% of Hanover's funds) and I pay them back the principal without interest in a year's time, I would have made $1.8M nett after tax.
On 5 June 2009 at 8:52 pm Ludwig said:
I give it no chance. Putting aside Watson's/Hotchin's self-serving ways and general incompetence, there are far bigger obstacles in their way. High inflation and double-digit interest rates will hit within a couple of years. That'll be a fatal blow to virtually all property, with 50%+ value falls hardly being out of the question. 100 cents in the dollar is just sheer fantasy to any realist.
On 13 November 2009 at 6:06 am Shirley Wakelin said:
We were hoodwinked with the promises of a 100% return - but no interest. Many investors are retired people who have saved all their lives to live comfortably in their latter years and not become dependent on their families. For most Hanover investors this is not now possible. No more holidays, not enough funds for private surgery while Hochin & Watson swan around the world without any thought of what they have done!
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