Struggling Brisbane based financial-services and fund-management company City Pacific has delivered glum news to investors in its main fund, the City Pacific First Mortgage Fund.
The units they hold in the fund are now worth much less than before: 35% less.
The company blamed the lack of credit which had cut asset values, but the real story remains dud assets, unanswered questions about loans and lending practices, and a failure to invest in liquid property investments.
City Pacific said yesterday that impairment losses for the first half to December at the City Pacific First Mortgage Fund will total $339 million.
The company’s securities were relisted yesterday following a statement from the ASX on Friday. The statement also comes before a meeting this Friday of unitholders which will discuss cutting management fees: a move City Pacific is strongly opposing.
The latest write-downs follow $53 million of write-downs in its annual results last September.
The company wouldn’t say whether the latest write-downs were linked to several troubled developments, including Martha Cove, a $650 million City Pacific-managed marina development in Victoria which owes the fund more than $70 million.
City Said the remaining underlying assets at the fund would be about $630 million and one unit at the fund would be worth 61 cents. These were described as "only paper losses" by management.
"The main contributors to the impairment losses of the fund have been the unprecedented events that have severely impacted the global and Australian financial sectors and the consequent limits on the availability of credit," City Pacific said in a statement on Monday.
"Conditions in Australia’s capital and property markets remain uncertain."
City Pacific noted the impairments will be recorded as a result of the relevant accounting rules regarding asset valuations for the fund.
"These impairments do not represent an actual amount lost by the fund," it added.
"They represent the current carrying value of assets in the fund and accordingly an impairment would not be crystallised until such time as the underlying assets of the fund are sold or refinanced."
City Pacific First Mortgage Fund unitholders will gather at a general meeting in Surfers Paradise, Queensland this Friday May 1.
That meeting will, in part discussion the contentious issue of management fees. Some unitholders want them cut to 1.5%, which City rejects. It wants 2.5% annual fee, which some unitholders reject as being too high.
In the notice of meeting for the Friday meeting, City said:
"The proposal in Resolution 2 has the effect of reducing the management fee to 1.5%.
"The Board agrees that, in difficult times a reduction of the management fee is appropriate, but the fee reduction proposed places City Pacific’s ability to continue to operate the Fund in considerable doubt.
"By taking certain cost restructuring and reduction initiatives the Board considers that City Pacific is able to continue as Responsible Entity and Manager of the Fund, provided that the management fee is not reduced below 2.5%. If the proposal to reduce the management fee under Resolution 2 is adopted, the Board believes that City Pacific must seriously consider its position as Responsible Entity.
"In any case, City Pacific’s principal financier has informed us that it will reconsider its continuation of the Fund’s finance facility. There are obvious ramifications should the financier withdraw that facility.
"We firmly believe that it is in unitholders’ best interests that City Pacific remains as Responsible Entity of the Fund. City Pacific continues to be best equipped to realise the assets of the Fund and maintain unitholder value at the best possible level, having regard to the difficult economic times. Certainly, it is not in unitholders’ interests to see receivers appointed to the Fund to “fire sale” its assets.
"The Board has resolved to reduce the management fee to 2.5%
"The Board strongly recommend that unitholders vote AGAINST Resolution 2.
"The Board reiterates its concerns for the ongoing viability of the Fund should a replacement Responsible Entity be appointed for whatever reason, City said in the meeting statement:
City shares fell 1 cent to 7 cents yesterday.
Meanwhile the carcass of the collapsed managed investment scheme group, Timbercorp is starting to attract interest, or rather the assets are.
Select Harvests said yesterday that it is looking at possibly buying Timbercorp almond assets after administrators suspended all the troubled company’s horticultural operations.
The interest is being driven by necessity as the suspension covers Select Harvests’ contract management of the Timbercorp almond operations.
That news saw the Select Harvest shares fall sharply: down 17.1%, or 60 cents to $2.90.
Responding to the suspension, Select Harvests said in a statement to the ASX that it was discussing with Timbercorp’s administrators a proposal to resume normal almond operations, possibly including acquiring the almond assets.
"These discussions (with the administrators) are at an early stage and it is too early to forecast the financial impact of the Timbercorp voluntary administration on Select Harvests," Select Harvests directors said in a statement.
"In addition, Select Harvests is meeting with its financiers to confirm their ongoing support and to seek their support in relation to the proposal for the future of the almond operations."
Debt-laden Timbercorp appointed administrators, Korda Mentha, l
