Hanover's woes worsen

By KRIS HALL - The Dominion Post | Friday, 25 July 2008

The latest victim of the finance company sector fallout, Hanover Finance, will be investigated by the Commerce Commission on the grounds that it may have misled prospective investors.

Less than 24 hours after freezing half a billion dollars' worth of creditors' cash, Hanover was also hit with the news that it had been stripped of its BB+ credit rating by international agency Fitch Ratings.

Though the commission would not expand on the details of its investigation, it said it would consider if Hanover had breached the Fair Trading Act by making "misleading representations".

In December, the Advertising Standards Agency intervened after complaints about a Hanover television spot claiming the company had the "size and strength to withstand any conditions".

The agency accepted Hanover's fresh statement of having "many years' experience", says executive director Hilary Souter, because it made no absolute assertions about market conditions and its ability to manage them.

Now, Hanover has blamed dramatically deteriorating market conditions for its problems, though co-owners Mark Hotchin and Eric Watson have pledged continued support for the business and say they will work with trustees to deliver a suitable restructuring plan.

The pair featured in today's National Business Review annual rich list. Mr Watson was joint-16th with $450 million, and at $200 million, Mr Hotchin was joint-40th.

A source told BusinessDay that management would work "round the clock" to ensure mum-and-dad investors recouped some or all of their investment. Also, the company had anticipated a downgrade but was "perplexed" by the Commerce Commission's intervention.

Hanover joins a wave of failed finance firms seeking moratorium agreements or restructuring plans to keep the business afloat.

St Laurence Group managing director Kevin Podmore, in Dunedin as part of a roadshow to brief investors, said the company was moving from a moratorium plan to one of recapitalisation.

St Laurence, which last month shut its lending business with $240 million owing to 9000 investors, is considering letting existing shareholders, not debenture holders, front more capital.

"We're a little way off announcing anything ... Speaking to investors, they're pretty supportive, " Mr Podmore said.

Dominion Finance Holdings' director Terry Butler, meanwhile, said management was considering a moratorium and would announce a decision next week.

Dorchester Pacific, whose finance arm Dorchester Finance owes debenture holders $168 million, said it was in the process of putting a plan together.