Dorchester Pacific Announces Half Year Results and Restructuring Proposal to Exit Moratorium

30 November 2009

Dorchester Pacific announces its result for the 6 months to 30 September 2009 with both the operating performance and the impact of the Fair Value Adjustment for the period in line with forecasts provided at the Company’s Annual Meeting in August 2009. Dorchester Pacific also announces a proposal for an early end of the Deferred Repayment Plan approved by Debentureholders and Noteholders in December 2008.

The proposal is recognition of the changed circumstances since the Deferred Repayment Plan was approved and of the need to achieve a settlement which would ensure the best outcome for investors under these changed circumstances. The proposal has been put to Trustees for their consideration prior to being sent to investors. The proposal includes a $10 million capital raising to support a restructured Dorchester.

Dorchester Pacific Group Results to 30 September 2009

Dorchester Pacific Limited (Dorchester) today posted its unaudited interim results for the 6 month period to 30 September 2009, reporting a Net Loss after Tax of $8.5 million (2008 $35.0 million loss). The loss for the 6 month period includes a Fair Value Adjustment on Debentures and Notes of $8.4 million charged to the Profit and Loss Account. The group Shareholders’ Equity decreased from $16.2 million at 31 March 2009 to $7.8 million as at 30 September 2009. The accounts of the finance group have been audited.  

Chairman, Barry Graham commented;  “The results and comparisons with previous periods reflect the net wind-down of receivables and the much lower levels of activity permissible under our Deferred Repayment Plan.   “This time last year the focus was on preparing the Deferred Repayment Plan to provide investors with a better outcome than under receivership and provide the company with the opportunity to survive and re-establish itself in the market."  

“Since the Deferred Repayment Plan was approved we have met all repayment milestones with $58 million repaid to date, (representing 35 cents in the dollar repayment to Debentureholders).   We have currently sufficient cash on hand to make the 31 December 2009 payment taking the Debentureholder repayments to 42.5 cents in the dollar."    

“While we still have one or two loans where we are relying to some extent on guarantees and other supporting security we remain comfortable that the net carrying value of assets and loans is realistic. No additional provisioning was required as part of the finance company audit of the accounts at 30 September 2009. All deferred tax assets were written off as at 31 March 2009.”  

Commenting on trading over the period Executive Director Paul Byrnes advised:   

“We budgeted a modest operating loss before tax and Fair Value Adjustment for the group in the current financial year. We are $300,000 or so ahead at the half year and still targeting a break even operating profit before Fair Value Adjustment for the full year to 31 March 2010."   

Dorchester Life

“Dorchester Life achieved an excellent result for the 6 months, well ahead of budget and also ahead of last year. The strategic sales alliance with Huljich Wealth Management announced in August has generated sales of Huljich Kiwisaver ahead of forecast for the first 3 months of the arrangement. The recently launched Stop Gap redundancy insurance has also contributed positively and attracted business through new advisor distribution channels."  

Dorchester Finance

“While the timing of property sales in particular continue to present significant uncertainty, realisations of property backed loans are generally being achieved in line with carrying values.   “The last 6 months has seen very positive progress made with the three  hotel property positions, Goldridge (Queenstown), One Riccarton Road (Christchurch) and the Emerald Hotel (Gisborne). The purchase of the Emerald Hotel was announced on 26 November. The three hotels represent over $30m of the total property loan book. The $19m of prior security holder first mortgages held by other parties on these properties as at February 2009 have all been repaid. Positive and improving operating earnings are expected from each hotel over the next 12 months."  

“Collections from the Senate Motor Vehicle finance book continue to track ahead of forecast. Modest levels of new lending commenced in the period with encouraging results in terms of loan quality and average interest rates achieved”.  

Restructuring and Settlement Proposal for Debentureholders

Chairman, Barry Graham commented:   “Investors and Shareholders of Dorchester have incurred substantial losses as a consequence of the company being caught up in the recent collapse of the non bank finance sector in New Zealand. We have made good progress in the last 12 months, restructuring the business to break even operating performance, and generating cash to repay 42.5% by 31 December 2009 of Debentureholders’ principal under the Deferred Repayment Plan."

“Additional property loan losses and provisions taken in earlier periods and significantly reduced income earned from cash balances as a result of the reduction in the OCR (around 8% at the time of the Deferred Repayment Plan forecasts) are unable to be recouped. As the Fair Value Adjustment reverses, shareholder funds will become negative and without new capital the risk that the company may not be in a position to make future quarterly repayments scheduled under the Deferred Repayment Plan will increase.”  

Directors are now of the view that full repayment to Debentureholders will not be possible without new shareholder funds.  However, shareholders will not be prepared to invest new capital to support a restructured Dorchester unless there is some settlement of outstanding investor liabilities.   A restructuring and recapitalisation proposal which will achieve full settlement with investors and take Dorchester out of Moratorium has been developed and presented to Trustees for their consideration.  

The settlement and restructuring proposal developed enables the business to survive and move on with the focus then on rebuilding the business for the benefit and recovery of value for all stakeholders.   Directors still believe Dorchester Pacific is well placed to become a vehicle for the finance industry consolidation only now starting to occur.   The settlement and restructuring proposal will identify Dorchester as a survivor in the finance sector.  

In outlining the settlement proposal Executive Director Paul Byrnes advised: “The settlement proposal to Debentureholders is based on four components, cash, property, interest bearing debt and shares in Dorchester as follows;

• $82m total cash repayments (50 cents in the dollar) following the December 2009 and March 2010 scheduled repayments
• Effective ownership and control in Dorchester owned hotel properties to be transferred to Debentureholders so they would receive all proceeds of sale together with operating returns
• A 3 year interest bearing Note issued directly to Debentureholders   The returns that would be realized from these three components is estimated to be between $0.87 and $0.91 cents in the dollar of Debentureholders’ principal.
• Shares in Dorchester Pacific representing 50% of the total shares then on issue to be issued directly to Debentureholders.   Mr Byrnes added:   “The intention is that the settlement with Debentureholders would be agreed in February 2010 and effective at 30 June 2010 subject to various conditions being satisfied."  

“One of these conditions would be a capital raising of a minimum $10m undertaken in April or May 2010 to provide adequate shareholder funds for a restructured Dorchester business. Under the settlement proposal, Noteholders owed approximately $7m would be made a further part payment being a full and final settlement which is yet to be finalised with their Trustee."  

“The settlement proposal, restructuring and capital raising, if accepted by investors and supported by shareholders, would take Dorchester out of moratorium status by 30 June 2010. The company hopes to be in a position to write to investors with full details of the settlement proposal before Christmas following discussion and agreement with Trustees."  

“On balance the Board believes that the settlement proposal is an equitable arrangement between investors and shareholders who will both benefit from a successful capital raising and the subsequent profitable growth of the restructured Dorchester”.

DORCHESTER PACIFIC LIMITED – Results for announcement to the market

Reporting Period: 6 months to 30 September 2009

Previous Reporting Period: 6 months to 30 September 2008 

ENDS