MFS freezes $770 million

A report in The Australian says that more than 10,000 investors in embattled finance group MFS have had $770m worth of investments frozen as the company battles to stave off collapse.

MFS yesterday froze its $770 million Premium Income Fund for six months amid a run on redemptions as the company struggles to source $150 million of debt due within weeks.

While MFS said its other funds were unaffected, the freeze raises questions for tens of thousands more investors in MFS who have ploughed $5.4billion into the company’s investment syndicates.

The MFS Premium Income Fund arm – which lends much of its money raised from investors to property developers in first mortgage loans – has more investors alone than the failed Fincorp and Westpoint empires combined.

The 10,000 investors in the fund will this morning be sent letters informing them they will be unable to redeem their investments in the company for 180 days because of a run on redemptions amid MFS’s funding crisis.

Yesterday’s redemption freeze comes just one week after the listed MFS, which is paid to manage the MFS Premium Income Fund, suspended its shares from trading after shedding more than $1.5 billion in value.

MFS shares, which were trading at about $5 last month, slumped to 99c after MFS two weeks ago called for a $550 million cash injection.

The move was viewed by the market as a desperate cash grab in an attempt to pay down short-term debt.

The Australian can reveal that MFS is behind a $1 billion New Zealand financial planning firm that poured tens of millions of dollars of investors’ money into three high-risk investment companies that have collapsed in the past six months.

Three of the seven debenture companies recommended to investors by MFS New Zealand’s arm Vestar have been placed in administration since July, owing about 30,000 investors more than $650million.

The MFS Premium Income Fund spruiks returns ranging from 8.25 per cent to 9.25per cent based on investments over six, nine, 12 and 24 months, with investors able to withdraw funds when their investment term expires.

MFS Investment Management chief executive Guy Hutchings said almost half of all investors whose loan terms expired in February – $28 million of $70million investments – had already applied for redemptions, causing MFS to freeze the entire fund.

“We have taken this action to defer redemption requests because the level of requests we have received has increased substantially over the last week, and we anticipate that increase in redemptions will continue,” Mr Hutchings said last night.

“Therefore in the interests of unit-holders whose investments are maturing in the months ahead, it was appropriate at this time to defer the repayment of theredemptions.”

Mr Hutchings said the Premium Income Fund and the associated Wholesale Premium Income Fund had ceased taking on investors, but MFS anticipated it would bring the funds back into operation.

“We anticipate putting the funds back on the market in the period ahead, and we also anticipate we will recommence the payment of redemptions before the 180-day period ends,” he said.

MFS’s other funds were not currently affected, Mr Hutchings said, but he would not explain why, except to say they were “different”.

Despite MFS’s plummeting share price and subsequent indefinite share suspension, the group has continued to advertise heavily and raise funds from investors in recent weeks.

The Australian Securities and Investments Commission, the corporate watchdog responsible for policing investment groups such as MFS, has refused to comment on the company over the past two weeks.

The regulator is also refusing to comment on the laws surrounding struggling companies that continue to raise money.

A Report by The Mole from The Australian