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Four Loans May Be Behind Finance Co Troubles

Fuseworks Media
Fuseworks Media

Wellington, June 20 NZPA - Four loans that were not repaid on time may be behind problems at Dominion Finance, finance company analyst Chris Lee says.

The Dominion Post today reported Mr Lee saying Dominion Finance had been relying on repayment of the loans, thought to be worth up to $20 million, to maintain cash flow and meet repayments to investors as their terms fell due.

But it is believed the borrowers used legal procedural methods to delay payment for a period of time.

Dominion Finance was adamant the company faced a liquidity problem and the loans would be repaid in full, and investors would be repaid, Mr Lee said.

Dominion Finance Holdings (DFH) is considering a moratorium on payments to debenture holders after becoming concerned about the liquidity of its two subsidiaries, Dominion Finance Group and North South Finance.

Shares in DFH slid 76 percent to a record low yesterday after trading resumed following Tuesday's suspension.

DFH shares closed down 38c to 12c, recovering from an earlier low of 10c, with 1.1 million shares traded. They have fallen from a record high of $2.86 in May 2007.

At March 31, debenture holders were owed $276 million, and funded around 60 percent of the company's assets.

DFH had asked Korda Mentha for strategic advice earlier this month, and yesterday engaged them and Chapman Tripp to provide expert assistance relating to a moratorium.

Important stakeholders had been open to the prospect of a moratorium, which would take some weeks to be developed, the board said.

NZX declined DFH's request to suspend trading in the company's shares and listed capital notes at its discretion, despite DFH's concerns about potential breaches of confidentiality arising from discussions with other parties.

The exchange operator is investigating whether DFH breached continuous disclosure rules about its situation before the two subsidiaries fell into strife.

There have also been questions raised over the timing of DFH's latest attempt to raise more cash.

In a letter dated May 23 it offered investors an "exclusive special" interest rate for secured first ranking debentures at between 10.75 percent and 11 percent for up to 18 months.

The company's letter said it was continuing to operate its business as usual and was making good profits.

The New Zealand Herald reported today that one investor had told it he had $2500 invested with North South Finance, maturing on Wednesday.

When the money was not credited to his bank account, he called the company only to be told that a moratorium was in place and that "everything's frozen".

He knew the moratorium proposal still needed investor approval so called trustee Perpetual Trust, to be told that while there was not technically a moratorium, it had given the okay for funds to be frozen.

Another investor did not get her $20,000 investment with Dominion Finance paid out when it matured on Monday. When she called up, she was told there had been a problem with the computer system but a cheque was being sent to her.

When news of the company's troubles broke late on Tuesday, her husband called the company to be told that the cheque -- which they had not received then -- would be dishonoured if they tried to bank it.

The cheque arrived yesterday, and they said they would try to bank it, but were not hopeful.

More than 20 finance companies have failed in the last two years, in part reflecting the effects of a global credit crunch.

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