Over half Strategic's loans impaired or past due

Just over half of Strategic Finance's loans were either impaired or past their due date by June 30, the property financier's annual accounts show. The accounts, which reported a NZ$15.7 million net loss, also included notes saying the condition of the loans and the long term viability of the finance company is likely to have worsened further since June 30 because of the slump in the property market and the ongoing credit crunch. Strategic Finance said in the accounts obtained by interest.co.nz that it had gross loans of NZ$560.11 million at June 30, of which NZ$258.33 million were categorised as impaired and NZ$41.24 million were categorised as 90 days or more past their due date, but not necessarily impaired. This means 53.4% of Strategic's loans was either impaired or behind on their payments. From those loans categorised as impaired, Strategic Finance took a provision for bad debts of NZ$62.5 million, of which NZ$59.55 million was charged to the income statement. A further NZ$18.71 was written off as a bad debt expense. These bad debt charges were more than enough to wipe out NZ$71.259 million of net operating income for the year. Interestingly, none of the provisions for bad debts or impaired assets were for Strategic's biggest loan to the Denarau Resort in Fiji, which is struggling to complete its third stage. Worse may yet be to come. Strategic said in the section of its annual report on events after balance date that there had been a continuing slowdown in the New Zealand economy and the property development sector since June 30. "These market conditions result in uncertainty in terms of when development projects commence and when they can be completed, and hence the return available to prime and mezznine debt providers," Strategic said. "These inherent uncertainties in the property market may lead to a further impairment or delay of the expected repayment date of the Group's loans and advances," it said. Strategic said it had made a collective provision against its Queenstown loans, which totalled NZ$83.2 million, down from NZ$105.1 million the previous year. Strategic also disclosed that NZ$300.5 million or 53% of the loan book was 2nd mortgages. Over 65% of the loans were for property developments or residential investment. The accounts also disclosed various breaches of Strategic's loan agreements with BOS International (Halifax Bank of Scotland), which it received waivers for. These included the 3% limit for the percentage of past due assets to total loans and the limit of 50% of shareholder value for any one loan. * This item was first published in our subscription newsletter available here.