Hanover Finance owner Mark Hotchin says it could be a long time before the property development finance sector gets back on its feet.
Hanover's four investor groups yesterday narrowly accepted Allied Farmers offer to give them shares in return for taking over Hanover's assets, worth about $400m.
A total of 75.45 percent of Hanover secured debenture holders backed the deal, just squeaking inside the 75 percent threshold necessary. The other three investor groups -- United Finance, Hanover subordinated noteholders and Hanover bondholders -- gave stronger support.
Hanover Finance got into trouble after several of its property investments lost value. Investors approved a payments moratorium and adopted a debt restructure plan (DRP) last year in the hope of recovering value but Hanover directors earlier this year said investors were no longer likely to achieve full repayment under the DRP.
The directors said the Allied Farmers offer of 78c in shares per $1 of secured debenture value was 8c higher than what was expected under the DRP and thus a better option for investors.
"We expected a downturn, we planned for the market softening, we just didn't think it would go anywhere near as far as it did," Mr Hotchin said.
"The liquidity disappeared out of the market very, very quickly, so we ended up with the moratorium. We thought we could put a programme together that would buy us time and that those assets would recover and in actual fact they didn't.
"When we did the DRP we weren't relying on a recovery, we were relying on time, however they declined significantly through the last 12 months so it's made a big difference."
Mr Hotchin became very unpopular as he continued on constructing a multi-million dollar property on Auckland's exclusive Paritai Drive while Hanover investments continued to collapse, and said he would for now "just keep my head down for a long time".
He said it was difficult for him and estimated he and co-owner Eric Watson lost $150m in capital and about $200m in goodwill.
"With the benefit of hindsight you could say we were long land or certain development projects, but of course also we were a company that had a billion and a half in assets," he said.
"Trying to realise assets as the market was falling it was difficult, but the main thing was the investor confidence went out of the finance sector, so people pulled their money out as fast as they could and people couldn't refinace or repay on their due dates and we ended up with a shortfall."
Several other finance companies with property investments have failed in the past two years and Mr Hotchin said the property development finance sector's future in New Zealand was hard to predict.
"Standing here right now it's hard to see it, but eventually I think there probably will be (a future). It will obviously be a lot tighter governing and different capital ratios etc, but it has to be or that industry will stop. The banks just don't have the appetite for it," he said.
"I think even now part of our challenge in selling a lot of these assets is selling them to people who can't fund them, so if the banks won't do it and there's no finance sector, who buys them?
"As a consequence you end up either discounting them or you end up coming up with some sort of finance structure."
Mr Hotchin said Hanover could not do anything on its platform but Allied Farmers could.
"They can do joint ventures, they could lend them money, they could do all those other things as a way of realising the assets, but as an industry in general it's got a lot of challenges."
He maintained the deal was the best opportunity for investors, despite some saying they might get paid more if they let Hanover go into receivership as they worried about a possible fall in value of Allied Farmers shares.
Mr Hotchin said there had been a lot of misinformation about the deal and about his role but he was glad emotion didn't cloud the thoughts of too many investors.
"I think some did, but ultimately the logic of the deal I think stood out and it's a better platform, it's a better way forward and I think the mums and dads will be better off for it."
Allied Farmers managing director Rob Alloway said he was delighted with the investors' decision and the company would work hard to repay them.
"To be honest I worry more about what we buy than what we don't buy and I'm a lot more worried now than I was before the vote to be honest. We have a very long, hard road ahead of us to fulfil all the promises we've made to investors and we've pledged to those investors to do our very, very best," he said.
"I'm very confident in the future of our finance business. We've been around for 30 years now, it's been through perhaps the toughest time that the finance industry's ever seen in the world and this only serves to strengthen it further."
Allied Farmers hopes the new shares will be issued on Friday and it will make an announcement about when shares can be traded once that date is confirmed.
A trading halt on Allied Farmers shares was extended pending an announcement, expected prior to the market opening tomorrow, from Allied Farmers on the nature of remaining conditions on the deal.
NZPA