Estate Group Creditors Eye Mortgage Portfolio
Sydney Morning Herald
Thursday April 12, 1990
Competitors of the $800 million Estate Mortgage group are lining up to bid for the portfolio of mortgages held by its six trusts, if further sales are necessary to free funds to meet obligations to unit holders.
Westpac Banking Corporation and Global Fund Management yesterday confirmed they would consider purchasing mortgages if they became available, while other players in the mortgage trust industry were expected to examine Estate's portfolio.
One way of solving Estate's inability to meet the run on deposits may be a$200 million sale of mortgages held by its six trusts through the creation of a secondary market.
Estate on Wednesday secured Victorian Corporate Affairs approval to suspend the repayment of funds to an estimated 60,000 unit holders until June, pending the outcome of a report on its financial position by auditors KPMG Peat Marwick.
This followed a sharp rise in redemptions to $96 million since December.
Estate used part of its $175 million working capital facility and the proceeds of the sale of some mortgages to secure funds to meet withdrawal applications.
But it could meet only $46 million of applications. Some $50 million in applications since the end of February are frozen and subject to the moratorium.
But any further sales will be on hold until the Estate's trustee, Burns Philp Trustee Co Ltd, considers the auditors' report, which will provide updated information on the assets of the various trusts.
Meanwhile, assurances from Estate the March quarter distribution would be paid out from funds that had already been set aside conflicted with the attitude of Burns Philp Trustee, which would authorise payments.
Estate director Mr Richard Fisk said an independent audit of the trust had been completed and he expected the distribution to be out in two or three weeks' time.
Burns Philp Trustee general manager Mr Bob Young said yesterday the March distribution was one of many issues "under review". Unit holders should wait for the financial reports.
Mr Young said they should be concerned but not panicked. Unit holder meetings are expected to be held in June to consider the report and recommendations on the group's future. Estate directors have said unit holders would get 100c in each dollar invested back if the trusts were wound up.
Industry observers argue the validity of this claim will be tested by the assessment of the quality of Estate's loan portfolio. There is concern Estate's total exposure to construction projects is above the industry average.
Estate claims to have only 15 to 20 per cent of its mortgage trust funds exposed to development projects with the rest secured by first mortgages to two-thirds of the property valuation.
There are worries about the basis for the valuations, given the softness in the property market, especially for development sites, partly completed projects and hotel and tourism property.
In the event the trustee decided to order further sales of the mortgages held by the Estate trusts, a long list of bidders can be expected seeking quality mortgages.
The Unit Trust Association, as Estate's problems became acute, informally canvassed mortgage trust managers on their interest in securing mortgages, if required.
Westpac's general manager, unit trusts, Mr Peter Joiner, confirmed there had been talks between the bank and Estate recently, but said these were not serious discussions.
He said in terms of raising funds for Estate, Westpac would be interested in looking at some mortgages provided they met the criteria set down by the manager of the bank's mortgage trust.
"We are always prepared to look at a serious proposal. I suppose we will wait and see what is in the report," he said.
Global Funds Management Australia Ltd financial director Mr Archer Whetham said yesterday the group would also consider buying suitable mortgages, but added it would hinge on the quality of the mortgages held by Estate's trusts.
The trusts affected by the freeze on redemptions are Estate Mortgage Investment Trust, the Estate Mortgage Income Trust No 1 and the Estate Mortgage Depositors Trusts Nos 1,2,3,4.
Meanwhile, the mortgage trust industry is hoping the panic and lack of confidence associated with Estate does not spread to other mortgage trusts. So far, none has admitted to a jump in levels of redemptions.
Armstrong Jones executive director Mr Richard Colless, said: "I believe there will at least a 24 hour lag time before the feeling sinks into the rest of the investing public."
Credit Lyonnais Mortgage Trust fund manager Ms Jamali McKinnon said: "We are not worried about a run on the fund. We hold 25 per cent of our funds under management in stand-by liquidity. We have no interest in development property mortgages."
Heine Management Trust (privately owned by the wealthy Melbourne-based Heine family) managing director Mr Richard Adams said he was confident that the "problem surrounding Estate Mortgage would have little effect".
"We have a very conservative lending approach with no exposure to specialities, no tourism, no hotels. All our properties are income-producing, shops or industrial sites. Their portfolio has less than 3 per cent in development loans and the rest is spread between tenanted income-producing land.
"We have a conservative loan to value ratio and a positive cash flow, the level of liquidity they keep is 10 per cent of managed funds. Historically, we need only 5 per cent, but we decided to keep it a little higher. Part of Estate's problem was that their's was not high enough."
Another unlisted group, Howard Mortgage Trust, was flooded with calls from investors wanting to know if their money was safe. "I'm sure we will be OK," a spokesman said. "We don't lend any money for construction or development. We are conservative lenders with a good spread of debts."
MORTGAGE TRUSTS Trust Group Assets $M Estate Mortgage 896.6 Westpac 502.0 Commonwealth Bank 212.2 ANZ AFT 200.3 Heine Mortgage Trust 148.6 Brick Securities 111.1 Global Mortgage 58.2 National Mutual 55.4 Howard Mortgage Trust 49.0 Perpetual Trustee 43.5 Armstrong Jones 42.7 Farrow Mortgage Trust 20.9 Elders Trustee 15.9 Capita 10.7 CL Australia 9.9 Colonial Mutual 8.3 Northern Securities 7.9 Mercantile Mutual 5.6 OST Umbrella Trust 0.4 Ultimate Mortgage 0.4 Source: Independent Funds Research, as at January 1990
© 1990 Sydney Morning Herald
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