Have your say: Hotchin/Watson's FAI Finance eyes property lending, capitalising loans, 5% equity

Adam Bennett points out in today's Stock Takes column in the NZHerald that FAI Finance, which is now owned by Mark Hotchin and Eric Watson, is planning to extend its lending from consumer finance to property finance. Bennett cited a new investment statement, which is available below in full.

FAI and its investors escaped the ignominious fate of its sister companies, probably as it was a consumer and retail finance company, and therefore wasn't exposed to the property market meltdown. In its latest investment statement, however, FAI says the company had decided to alter the focus of its lending activity. "The recent decline in the availability of financing to individuals and businesses has opened up the opportunity for the company to provide lending to other sectors including commercial and property sectors." FAI tells investors: "The company may engage in the provision of property development and property investment finance to the property development/investment sector by offering new lending or acquiring existing loan exposures."

My view? FAI Finance has a government guarantee. I wonder if Treasury has approved the amended trust deed, which is available here below in full. Is the government prepared to pay the bill if Hotchin and Watson use FAI Finance as their new development finance vehicle and it falls over (in the same way Hanover Finance did)? Are debenture holders willing to accept the change of approach? I haven't had a chance to have a proper look through the full prospectus and amended trust deed yet. But it is noticeable on a quick glance that now loans don't have to pay interest as they go. These loans can now be capitalising loans, which are the status quo for riskier development lending. Also, FAI Finance only has to retain 5% equity, which means any equity held by Messrs Hotchin and Watson can be levered up to 20 times. I'd love it if some of our readers could look through them too to identify any fishhooks for both Treasury and FAI Finance debenture holders, who invested their money in the expectation that it would only be lending against consumer finance, not property loans. I welcome your views and insight in the comments below. Here is the amended FAI Finance Trust deed. FAI Finance Trust_deed Here is the new FAI Finance prospectus in full.