Company letter assured investors
February 13th, 2008, 2:21 am Hobbies News
In a letter to investors dated December 20, MFS Pacific attempts to detach itself from recent finance sector woes, using its parent companys offer of financial backing as a form of security to investors.
MFS Pacific Finance director Jason Maywald says unlike other companies that were working hard to secure new credit lines, MFS Pacific Finances liquidity position was covered by parent company MFS Ltd %26mdash; an announcement that was made to the New Zealand Stock Exchange.
KPMG financial service deputy chairman Godfrey Boyce said even then, the company would have known at that point that in terms of its projected cashflow, it was in trouble.
In a survey conducted by KPMG in December, MFS was one of two companies that recorded the poorest ratio for amount of equity in the business compared with the size of the company.
%26quot;They were putting a lot of reliance on the parent company to backfund them,%26quot; Mr Boyce said.
MFS had been a stellar performer in the sharemarket and investment advisers might have been blind-sided by that when advising their clients, he said.
However, it did not reflect the underlying situation, he said.
%26quot;Our view was it was a highly leveraged company in New Zealand and in terms of offering a buffer to shareholders with equity, it was reliant on that guarantee,%26quot; he said.
Kapiti Coast sharebroker Chris Lee said the situation was typical of what had happened with several finance companies that had made assurances before they went broke, which reflected %26quot;hope rather than reality%26quot;. Mr Lee estimates southerners have between $20 million and $40 million invested in MFS Pacific.
Meanwhile, Mr Boyce said the likelihood of a moratorium proposed by MFS being accepted by investors would depend on the clarity of information given about inter-party lending within the company.
An investor spoken to last night said she felt MFS was a secure company because of the nature of their portfolio, which dealt in mortgages.
%26quot;They are a huge company. If they fail in Australia, its going to have huge repercussions,%26quot; she said.
She added she did not think MFS would have known it was in trouble at the time the letter was sent out.
%26quot;My understanding is that they had their hotels up for sale and that it had been in the pipeline for a while, and from what Ive been told the person that was buying them pulled out.%26quot;
%26quot;We all do a job. Were not all perfect, she said.
Vestar director Ken Swain could not be reached for comment. .
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