AMP Business Transcript Mark Hotchin

AMP Business Transcript Mark Hotchin

interviewed by NADINE CHALMERS-ROSS Friday 18th February 2011

Nadine: Former Hanover investors now hold almost worthless shares in Allied Farmers, the company that bought the loan book. Allied blames Hanover and Hanover blames Allied, recently issuing a letter to Allied's shareholders. Well with me now is Hanover Director, Mark Hotchin. Good morning Mark.

Mark Hotchin: Good morning.

Nadine: Now you accuse them of mismanaging the assets, but did you sell them a lemon?

Mark: No we sold them exactly what they thought they were buying, they did four months due diligence, we had a full audit, and they knew exactly what they were getting, and it should have worked, their proposal was fine, they just didn't stick to it.

Nadine: They did their own due diligence but you and the board had a better knowledge than anyone. Did you ever think that it was worth 396 million?

Mark: Yeah of course it was audited, it was a very extensive audit, it was based on valuations, based on management input, it was worth what it was worth.

Nadine: Two months later they wrote it down by more than 200 million dollars, how could that be due to mismanagement?

Mark: I'm not sure if it was the total amount at the same time, but my understanding is part of that was an accounting adjustment, and they had a large receivership in there as well, exactly which loans were written off I don't know, we weren't privy to that.

Nadine: But it's now worth a quarter of what it was when they acquired the assets, how could that be mismanagement that has resulted in such a write down?

Mark: Yeah that's a very good question. Part of it is they've raised a lot of cash, they obviously had cash problems so if you have assets that are difficult to move in a slow market and you insist on moving them, you have to take a big discount and that's what they've done.

Nadine: Why are you bringing this up now? What are you hoping to achieve?

Mark: You know (a) we've had a blame for this, but more importantly...

Nadine: Do you not deserve the blame?

Mark: No it's actually more about the investors, they backed this deal, they got sold a concept that was never put into place. What little value there is left they need to have an opportunity to gain some value out of it.

Nadine: But Allied said from the outset that they were going to have to pay down debt, and that it was gonna take some time to realise these assets - are we judging them too soon?

Mark: Well given that three quarters of it's already been written off, I don't think so, and they did say they'd have to pay down debt, they just didn't say as much debt as there was.

Nadine: You talk about the value of the assets being at 396 million, and part of that was the shareholder package that you put in with some 76, but part of that was assets, that was the Matarangi Estate, that was written down very heavily as well and eventually put into receivership, so was it ever worth what you said it was worth?

Mark: Well it wasn't what I said it was worth, it's what valuers said it was worth. So it had a valuation, it had been extensively, I mean we owned the thing for 12 years, had a pretty good knowledge of it. The first thing Allied did when they took it over was close the sales office, very hard to make sales if you close the sales office. They had no intention of seeing that property through right from the start.

Nadine: But they would have had to plough millions of dollars into that to get any value out of it anyway wouldn't they?

Mark: Well no there was stock, and they had stock ready to sell, so no they didn't have to spend a lot of money at all.

Nadine: Is part of this campaign to get the five million dollars that Allied Farmers owes you?

Mark: No, no. The five million dollars is a bit of a misnomer. We've been accused of a lot of things, and one of the ways of defending that is to you know go through the courts which is what we're doing. I'm very very aware the potential effect taking five millions dollars out of that company would have on it, and we're not looking to do that.

Nadine: Are you abandoning that claim for the five million?

Mark: No we're not abandoning the claim, but it won't go to mine or Eric's or the shareholders' benefit, we're looking at a structure that will not deprive the company of cash, but will also give some value back to the Hanover shareholders.

Nadine: Let's look at what happened before the company went into moratorium and then before the sale. People have said that you took out some 85 million dollars in dividends over the last two years. Was that not irresponsible given the conditions that were prevalent at that time.

Mark: Well two years is a long time, so 2006 was a very different market, and there were a lot of areas where that money went to, including redemption of capital notes etcetera, because the only way to get money out was through dividends. Probably the more important period is the six months prior. Now yes there were dividends in that period, but more than double what was taken out went back in.

Nadine: But it went into related party loans, so was that not going into your back pocket anyway?

Mark: No because it went into Hanover, it went back into the finance company to reduce - in part to reduce related party loans, thus giving them more cash, more liquidity.

Nadine: But if you were reducing related party loans, I mean they were on a capitalised interest basis anyway, so did they need to be reduced?

Mark: Well not all of them were on capitalised interest, but it's not a matter of whether they needed to be reduced, any reduction's good, so cash back into the business is better than cash out. So if 10 million went out and 20 million went back in you're 10 million better off.

Nadine: So you're telling us that that was responsible to take out that 15 million dollars in the six months before Hanover froze repayments to invest it?

Mark: I think in light of the fact that more than double of it went back in yes.

Nadine: Do you have a business future in this country?

Mark: Um, I don't know.

Nadine: Are you going to pursue one?

Mark: I will pursue business opportunities.

Nadine: In the finance company sector?

Mark: Probably not.

Nadine: What about FAI Money?

Mark: Um, what do you mean?

Nadine: I mean you're still involved with that.

Mark: Yeah I am, and FAI doesn't take money from the public.

Nadine: Does it lend on any different sort of basis?

Mark: It's a consumer finance business, so it does a totally different type of lending.

Nadine: Alright, let's look at the Serious Fraud Office and the Securities Commission. Obviously Allied's taken their concerns to the Serious Fraud Office, and they seem to think that there is grounds to investigate, does that concern you?

Mark: Obviously any investigation is something you have to go through, there's always issues, you know you have to supply an enormous amount of information, it takes a long time, but concerned no, I don't think we did anything wrong.

Nadine: Are they gonna find anything?

Mark: I don't believe so.

Nadine: So where to now for you, where to from here?

Mark: In relation to Allied or...

Nadine: Yes, I mean what do you want to see there?

Mark: Change...

Nadine: Rob Alloway's already going to leave.

Mark: Well he's going to leave his executive role not the board, you know there's issues in there that such is the reset clause. Now he at the beginning of this had some five million shares. After the reset by writing all this money down he'll end up with some 17 million shares.

Nadine: But it's still worth the same amount of money, and in fact that's for all Allied's original shareholders, not just him.

Mark: No no I accept that, but the people who are running the company benefit or at the very least neutral by any money they write off, there's no incentive for them to add value.

Nadine: You're not trying to make him your scapegoat?

Mark: No I think he's trying to make me his scapegoat.

Nadine: Alright Mark Hotchin, thank you for your time this morning.

ends

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