24 Jul 2008

Freeze announced by Hanover Finance

7:00 am on 24 July 2008

Another finance company is in financial strife. Hanover Finance Ltd and two associated companies have frozen over $½ billion of funds. More than 16,500 investors are affected.

Hanover is one of New Zealand's biggest finance companies.

The announcement on Wednesday brings the total amount of money put at risk in the finance sector in 2½ years to $3.9 billion.

Some of that money is being recovered, but many investors are finding their money is gone for good.

Rumours had been swirling about Hanover's position, after it put the "Five Mile" Queenstown development into receivership and sold a golf course at Kinloch in a mortgagee sale.

Kapiti financial advisor Chris Lee says Hanover tended to source short-term funds from investors, but lend to long-term projects.

Mark Hotchin, who co-owns Hanover with millionaire Eric Watson, says a combination of factors caused the problem: the global credit crunch, a softening property market, the collapse of other finance companies and a lack of confidence in debenture funding.

There is also uncertainty over the ability of borrowers to repay.

Hanover says it is acting to preserve the value of its investments. But it says it is continuing to meet its trust deed obligations and has a continuing financial capacity to trade.

The suspension applies to sister company Hanover Capital and a subsidiary, United Finance.

Another subsidiary, FAI Finance Limited, is not included in the process.

The company says it is working on a plan to restructure the business.