MFS Pacific Finance defaults on interest

A Sydney Morning Herald report says that MFS Pacific Finance has defaulted on interest payments to some of its 12,000 New Zealand investors after its parent company in Queensland refused to continue support.

New Zealanders have $NZ325 million ($A286.52 million) invested in MFS Pacific Finance Ltd, and the Australian company has said it will not (not) provide further financial support.

MFS Pacific is the 14th significant finance company to fail or default on repayments in under two years means and it raises to nearly $2 billion the amount of funds affected, although some of this has since been repaid by the receivers of some of the companies.

A financially-troubled Gold Coast tourism and funds management group, MFS Ltd, controls the NZ operation through a 38.5 percent stake in MFS New Zealand, which holds MFS Pacific as a wholly owned debenture finance company.

MFS Ltd had previously agreed to provide MFS Pacific with financial support, including the provision of any funding required by MFS Pacific to make payments to its investors as they fall due.

But on Wednesday, directors of MFS Pacific and MFS New Zealand were told by MFS Ltd that it would not immediately be making any funds available to MFS Pacific, and as a result MFS Pacific was unable to make payments due to its investors.

Figures in MFS New Zealand’s financial statements to September 2007 showed it had $15 million invested in various MFS-related businesses. It also had loans totalling $74 million to two trusts managed by MFS and had borrowed nearly $150 million from its parent company. MFS New Zealand had $562 million in total assets, with $555.8 million of liabilities.

MFS Pacific has about $80 million of debentures due to mature in the first three months of this year.

Chief executive of MFS New Zealand Jason Maywald was reported to have said last week: “Our business has always been run as an extension of MFS Ltd and we’ve been open and transparent about related party exposures in the past. We are comfortable. It is not a concern to us”.

MFS Ltd’s share price dropped 70 percent in Australia on January 18, and the company, chaired by former Liberal Party leader Andrew Peacock, admitted debt had blown out to $A1.69 billion ($NZ1.94 billion) – $A220 million of which is payable within the next three months.

On January 23, its shares and those of another offshoot, MFS Living & Leisure, which is listed in both Australia and New Zealand, were stopped from trading.

But MFS New Zealand shares continued to be traded until this week, selling for $1.10 each, down by about a third on their level when they first listed on the NZX in the middle of last year.

Directors of MFS Pacific said in a statement that the company had not been placed into receivership.

But they have withdrawn the company’s prospectus – which means they cannot sell any new investments – and entered into discussions with the company’s trustee Perpetual Trust Ltd, and appointed new corporate advisors.

“Together with their corporate advisors, the directors of MFS Pacific are working to clarify the position of MFS Limited and MFS Pacific, and in particular the timetable for the completion of MFS Ltd’s strategic review,” directors said in a statement.

This review of its MFS Ltd’s operations includes its financial services operations in New Zealand.

MFS Ltd has not indicated that it has any intention of disposing of the 38.5 percent stake it holds in MFS New Zealand. It provides MFS New Zealand and its subsidiaries with operational and administrative support functions.

“MFS Ltd is currently continuing to provide those services and there has been no interruption to the day-to-day operations of MFS New Zealand or its subsidiaries,” directors said.

It was also continuing to provide MFS New Zealand and its subsidiaries with operational financial support because MFS New Zealand manages some other local financial services businesses and assets on behalf of MFS Ltd.

MFS New Zealand also holds an option to buy these businesses, including financial advisory firm Vestar and debenture finance company MFS Boston Ltd.  

The halt to trading in MFS Ltd shares came when directors said they were in discussions to sell its Stella Group travel and property subsidiary to pay down debt.

Stella Group owns the Gullivers Travel Group in New Zealand, for which it paid $230 million in 2006, with a number of travel-related operations including Holiday Shoppe and United Travel.

An Australian stockbroker Heath Hill told the ABC that the Stella Group will be sold as the crown jewel of the group.

Corporate raiders Private Equity Partners and US-based Kohlberg Kravis Roberts are beleived to have joined CVC in the bidding war for the Stella Group, each offering more than $A1.8 billion for a half share in the group, which includes BreakFree resorts, Peppers hotels and Harvey World Travel.

Despite other media reports of a bidding war though The Sunday Mail understands MFS chiefs are negotiating with only one party – CVC Asia Pacific.

An earlier offer by CVC, believed to be $1.6 billion, was rejected by MFS, which spent $1.9 billion building the Stella Group.

And the Herald Sun newspaper in Melbourne said that if MFS Ltd survived its debt crisis it said on Thursday it would abandon its business name and put a new name to shareholders by April 1.

A Report by The Mole from The Sydney Morning Herald, The Herald Sun and The Sunday Mail