Statutory manager airs more concerns over Hubbard

Statutory manager airs more concerns over Hubbard businesses

By Paul McBeth

Aug. 27 (BusinessDesk) – The government-appointed statutory manager over Timaru millionaire Allan Hubbard and part of his empire has flagged more concerns over the state of the businesses.

Richard Simpson and Trevor Thornton, of Grant Thornton, say Hubbard’s Aorangi Securities Ltd. has too much exposure to the dairy sector, leaving “significant risks” for investors, while Hubbard Funds Management, another investment vehicle added to their investigation last month, is over-valued by at least 25%.

On Aorangi, Simpson and Thornton say the problem they face is that Hubbard let the vehicle accept on-call deposits and invested that cash almost exclusively in long-term loans and investments, with much of the money going into about 25 dairy farms. That created an “alarming gap” between the company’s loan income and repayments to investors.

Aorangi received some $96 million from investors, and has invested about $130 million in farming entities, Te Tua Charitable Trust and other commercial entities. Of the $83 million put into the farming sector, $59 million went into businesses associated with Hubbard. About $1.4 million of loans have been identified as unrecoverable.

“With the number of dairy farm sales being at historically low levels, there is very little opportunity to free up this capital so that it can be returned to investors,” the report said. “Also of concern is the way investments have been structured meaning many Aorangi investments rank behind all other creditors of the farming ventures. This is far from ideal.”

Still, the statutory managers said they were “heartened by a pledge to investors from Mr Hubbard that his investment in Aorangi could be used to help offset any potential losses,” though they doubt he will be able to inject funds like he has in the past. They expect to make a “small repayment” to investors in October.

They were more downbeat about the prospects for Hubbard Management Funds, which they discovered during the course of their initial investigation, saying they are “of the opinion that the value has deteriorated further” from their estimated valuation putting the portfolio 25% below Hubbard’s March 31 statements.

“Investments have been allocated to investors in excess of those actually held by HMF” and the risk profile isn’t “consistent with the normal requirements of the typical HMF investor and is relatively high risk,” the report said.

The government appointed statutory managers over some of Hubbard’s interests on the advice of the Securities Commission after a complaint was made by an investor in Aorangi who claimed not to have been given a prospectus. Since then, the decision has polarised the investing community, with South Islanders rallying around the man who has propped up much of the region’s economy, while others have bayed for blood in the wake of the finance sector’s collapse several years ago.

The next report is due in September.

(BusinessDesk)

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