Four out of five loans in default at Equititrust fund
Sydney Morning Herald
Thursday February 10, 2011
FOUR out of every five loans advanced by the Equititrust Income Fund may be in default by the end of the year, Equititrust reported, but its chief executive said there were "zero" implications for unitholders in the $240 million investment.David Kennedy told BusinessDay that default "doesn't mean we have a concern about the money being repaid" to the fund (EIF).EIF is one of $20 billion worth of investment schemes forced to freeze redemptions in 2008 after the government guaranteed bank deposits during the financial crisis.Equititrust has also had to pull plans to raise $50 million via the Equititrust Priority Class Income Fund to refinance EIF's debt and fund distribution payments.The Australian Securities and Investments Commission took action last month after BusinessDay reported on Equititrust's potential conflict in trying to raise money from new investors to effectively bail out the EIF.Mr Kennedy said it voluntarily withdrew the fund's product disclosure statement after meeting ASIC last week and being told it "had concerns about the conflict".A spokesman for ASIC refused to comment.Equititrust is exploring the option of raising the$50 million with an external party, or from other investors - including an unnamed investment bank. Most of the $50 million was earmarked for bank debt which the company has had to pay down.It is one of several issues which led Equititrust's auditor to state in the company's 2010 financial accounts that there was uncertainty regarding the group's continuation as a going concern.Mr Kennedy said Equititrust planned to pay back its EIF loans with NAB by June. Another loan with HBOS has been extended to June 30.An investor update this week reported that at the end of last year, more than one-third of EIF's loans were in default - borrowers were more than 90 days in arrears with interest payments.Equitrust said that given the current economic climate it was possible that the value of loans in default would increase to about 50 per cent of total loans by March 31, and to about 80 per cent between April 30 and December 31.Mr Kennedy said the defaults mainly reflected the fact that Equititrust had stopped capitalising interest payments and was taking direct control of these properties in default.When asked about the implications for EIF's 1,500 investors, Mr Kennedy replied: "I would say zero."He said the collapse of Gold Coast property developer Raptis Group left Equititrust with a $50 million exposure which was repaid along with $2.5 millionin interest.
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