Update on Equititrust expected to show $35m in impairments
Sydney Morning Herald
Monday February 14, 2011
INVESTORS with $240 million trapped in the Equititrust Income Fund are expected to receive a detailed update this week on the status of the troubled fund, and its losses, following Equititrust's recent tangle with the corporate watchdog.Equititrust's report is expected to show individual property valuations for the first time, and a rising level of loan impairments that are expected to hit $35 million for the half-year to December.The Australian Securities and Investments Commission would not say if it had a hand in Equititrust's increased level of disclosure,but the company was forced to look for new funding sources last week after ASIC expressed concerns over conflicts arising from a proposed $50 million raising.The money was to be used to refinance Equititrust Income Fund's bank loan and fund distribution payments as well as redemption payments for the fund, which has had a freeze on redemptions since 2008.ASIC also expressed concerns over the company's disclosure related to the Equititrust Income Fund, as well as the fund that was to be used for the $50 million raising.The latest write-downs will exceed the company's ability to absorb the losses and will subsequently eat into the retained profits buffer designed to protected Equititrust Income Fund investors from losses.The chief executive of Equititrust, David Kennedy, told BusinessDay that this $40 million buffer on the frozen fund is expected to take a $10 million hit. The rest of the write-downs would be taken against profits, he said.For investors the write-downs add to apprehensions about the safety of their money after Equititrust admitted last week that up to 80 per cent of its loan book might be in default by the end of this year.Mr Kennedy is expected to explain next week how he plans to get hold of these properties, over which Equititrust has a first mortgage, and manage them to ensure the loans are paid in full.He said there was "no correlation between loans in default and likely investor losses".Equititrust capitalises the interest on most of its loans, meaning the interest tends to be paid in a lump sum when the loan is repaid.Mr Kennedy said Equititrust had stopped capitalising interest on the loans and taking possession of the properties in default.He cited the Queensland developer Raptis as an example of rescuing funds from a loan default. Despite its collapse in 2009, Equititrust recovered its $50 million exposure plus a further $2.5 million in default interest payments."The risk was covered," Mr Kennedy said.
© 2011 Sydney Morning Herald