Hi everyone, and especially fellow Hanover investors,
These days there is one unpleasant (to put it mildly) issue at the forefront of my mind, a small matter of an impending vote. It may sound silly to wealthy people, but the fact is a big part of my savings is tied up with Hanover Finance. That’s why, a few days ahead of Tuesday’s vote, I’m trying to think clear. The few thoughts that follow are what I’ve understood so far; I happy to be corrected on any points.
Plain facts first: Hotchin and Watson have withdrawn more than NZ$200 million in cash from the company since they acquired it. During this time they lied to their ratings agency (Fitch) leading to their credit rating being far more healthy than it should have been. Now they are trying to convince Hanover investors that we should trust them concerning the value of the properties included in their so-called ‘$96m rescue plan’.
The $96m actually turned out to be $10m in hard cash, another 20m which is just a guarantee (if needed to meet the projected repayments over the next two years), and the rest in ‘assets’, primarily real estate. The "assets" are those up till now held by Axis and are encumbered by mortgages to both Hanover and various banks, including BNZ and HBOS (thus the banks need to consent to the use of the assets for the deal to go ahead).
Furthermore the plan assumes the successful recovering of all outstanding loans over time and yet even if this surprisingly happens, you do not get anything at the end but your money back. Obviously one should take into account the inflation rate over the next five years, as well as the opportunity cost of having your money frozen. At least investors of Strategic Finance are to be given 8% interest by 2013. This option, as it involves re-exposure to the market, has an element of risk – how much nobody knows.
The alternative to this deal is to back the receivers to get back 50-60% of the capital now. This is a risk free option.
What I don’t understand is how the very same people who got the company into this mess have suddenly the ability to make money. The way Hotchin has behaved in these critical times does say a lot about how smart he is: having a birthday party in Fiji, with eighty of his mates, in 1000 dollars/night rooms, while 17’000 people are wondering what’s the best thing to do to try to save some of their money is unbelievable. It looks like money doesn’t have the same value for him as it does for us.
Voting in favor of the plan next Tuesday would also mean that no class action is possible afterwards. Yet class action actually seems to be the least risky option to have all our money back and to have the people accountable for losing it held accountable. Bruce Sheppard wrote on his blog, “bond holders are giving up the right to sue the shareholders to recover dividends. They are giving up control of the enforcement of related party loans; they are giving up any right to sue the directors for possible breaches of fiduciary duty, and or the Fair Trading Act. And they are giving up the right to pursue the trustee”.
As many commentators have said, to understand receivership as an option doesn’t mean that a fire sale will occur. Receivers sell assets when they think that it is a better option than holding them and managing them, not otherwise.
A moratorium requires a 75% majority of investor’s votes; thus, assuming a low turn out, a small amount could veto it. I’m not saying that receivership is better than moratorium as such, but only that, considering the actual situation we are in and how untruthful Hotchin and Watson are, I want to opt for the least risk, the best chance of having my money in my hand and accounatbility.
By the way a funny thing is that, for once I do agree with most experts, i.e. Brian Gaynor, Bruce Sheppard, Tim Hunter, Bernard Hickey, etc.
Should we trust those who ran the company to keep running it? I’m sorry, but I can’t let these guys play with my money for five more years: ‘a bird in hand really is worth two in a bush’ as they say.
Finally, I’ve visited today an explosive new website today, which some kind soul emailed me, which describes all of Hochin’s and Watson’s dirty businesses. It’s a consolidated source of facts that many many people will take an interest in. The most stunning of I warmly recommend anyone to visit it and register to launch a class action against these two crooks (www.aninconvenienttruth.biz/index.html ).