Sunday, 11 April 2010
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Pacific Resort NZ Investors Nightmare in Fiji Since Bainimarama Coup
8 April 2010
The Independent Financial Review perJENNI MCMANUS
The Hanover board waived a $20 million guarantee against a loan on a crippled resort development in Fiji only days before Hanover investors were due to vote on the merger with Allied Farmers.
The deal, done in secret after a series of tense meetings just before the vote, was signed off after Auckland property developers Kevin Storey and Brent Gibson threatened to sue Hanover for failing to deliver on its loan obligations as financier to the Pacific Resort project.
Legal action against Hanover at that time would have blocked the already controversial Allied merger proposal. Gibson and Storey had received about $20m of what they claimed was a $40m-plus loan for Pacific Point and were seeking the remainder when Hanover shut up shop in mid-2008. Hanover, for its part, wanted the pair and their company, Sky King, to begin repaying the $20m they had already borrowed.
"The Hanover directors knew [a lawsuit would block the merger]," one market-watcher told The Independent this week. "[Storey and Gibson] had them over a barrel."
Gibson said he and Storey did not want to discuss their dealings with Hanover, because they were bound by confidentiality arrangements.
But former Hanover chairman David Henry confirmed that their guarantees were "stood aside" for "some good commercial purpose".
He refused to say what this purpose was or to disclose the circumstances behind the waiver.
"I don't want to get into the detail," he said, "but it was done in the best interests of Hanover and United Finance."
Henry, who said he was also speaking on behalf of Hanover director Mark Hotchin, confirmed the waiver was done after the Allied-Hanover merger was proposed, but before Hanover investors got to vote.
Henry represented trustee Guardian Trust on the Hanover board. He and fellow independent director Des Hammond were part of a credit committee set up by Guardian Trust to scrutinise Hanover's lending and general corporate governance practices at the finance company.
Allied Farmerschief executive Rob Alloway, who now runs the merged Allied-Hanover entity, says he knew nothing about the waiver until after the merger vote. "When we did due diligence, it looked like any other loan."
He says he accepts the guarantee has been extinguished, but has ruled out litigation against the Hanover board.
"They were well within their rights to make a commercial decision," he says. While he could not understand why the guarantee had been waived, "we couldn't stop them doing that".
Allied is now waiting for Storey and Gibson to give him a "sensible proposal with a sensible security" to enable work on the project to resume.
"The loan is past due date and in default," he said. "Our appetite for risk is pretty minimal."
Meanwhile, interest on the $20m was continuing to accrue at between 12 per cent and 15 per cent, Alloway said.
Allied has a first mortgage over the Fiji property and may resort to appointing a receiver.
Gibson says he and Storey are the meat in the sandwich. "We were given a lot of positive hope that Allied would fund the project through to completion."
He says the pair are being "beaten up" by the project's investors, "who have done a lot to discredit Kevin and me".
"We just want to complete the project, pay our bills, repay the loan money and move on," he says. "All we wanted to do was good, honest business."
Gibson says the depositors' money, about $1.5m, is safe in law firm Castle Brown's trust account.
Alloway estimates it would cost another $30m to $40m to complete the project in the form in which it was sold to investors. This included a residential community, five-star hotel and marina.
Right now, all Allied is considering is a plan to inject about $14m to get the residential sections to the stage where titles can be issued.
At this point, one investor says, they will be asked to settle "and that's when the real s... fight will begin".
This investor says he was told settlement would not be required until construction on the hotel had begun.
"That's not likely to happen any time soon," he says. "We have no intention of settling unless the project is delivered as promised."
In 2006, investors, mainly South Island mums and dads, paid 10 per cent deposits on yet-to-be-developed sections at Pacific Point that were selling for $199,000, and $299,000 for waterfront land. The Independent has been told about 80 purchasers bought $32m worth of sections.
Saying they are "deeply unhappy" about the situation, one group of investors has sought legal advice from Brookfields and they are considering their options.
They complain that no work has been done on the development for the past 18 months. Gibson says this is because Hanover's money dried up. The Fijian contractor, claiming to be owed about $4m, walked off the job more than a year ago.
In most cases, the sale and purchase agreements contained no sunset clause, so investors cannot cancel their contracts.
But one major investor, Singaporean Mike Panjwani, had a sunset clause. He is understood to have cancelled his contract and has begun legal action for the return of his deposit on the 30 sections he purchased.
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