Dorchester capital reconstruction 'well advanced' (Update 1)

Dorchester Finance's trustee, Perpetual Trust, says the failed finance company's capital reconstruction plan should be finalised within three weeks. (Update adds Dorchester's statement). Dorchester froze around 7,800 deposits worth NZ$176 million in June 2008. Investors have so far been paid back half their money. Read Perpetual Trust's full statement below

Perpetual Trust today announced it is well advanced in negotiations with Dorchester Finance in relation to their proposed Capital Reconstruction Plan. Perpetual Trust is the trustee for the debenture holders in Dorchester Finance.  The debenture holders approved a moratorium for the company in December 2008.

“We expect that a final decision on the proposed plan will be made within the next 2-3 weeks.  It is a long process working through the detail and negotiating a plan which  is in the best interests of investors”, said Matthew Lancaster of Perpetual Trust. “The plan was first announced to the market before Christmas.  We have received the final report from the independent expert, PricewaterhouseCoopers, which we have commissioned for the debenture holders. “We are also undertaking the final review of the meeting documents to ensure that they contain sufficient information to enable debenture holders to make an informed decision,” said Mr Lancaster. The plan which is to be put to debenture holders for their consideration is conditional on Dorchester Pacific Ltd (Dorchester Finance’s parent) raising a minimum of $8 million new capital from a proposed rights issue of $10 million (100 million shares at 10 cents per share). It is also conditional on shareholder approval and subordinated noteholder approval. Under the Capital Reconstruction Plan it is likely Dorchester Finance debenture holders will be offered four different securities in exchange for their outstanding Debenture Stock, of which 50 cents of the principal amount has already been re-paid. The four securities which would be allocated amongst debenture holders in proportion to their holdings consist of units in a Property Trust which will hold $33 million of hotel properties, $20 million of  Interest  Bearing Secured Notes; 36.5 million shares in Dorchester Pacific, the same number as currently on issue, and so representing 50% ownership prior to any further capital raising, and finally, options to purchase Dorchester Pacific Shares in 3 years at a set price. “These types of reconstructions are complex and take a lot of time to fully assess to determine that they are in the interests of debenture holders, and also to ensure that the process complies with applicable securities legislation.  We are almost there,” concluded Mr Lancaster.

Dorchester has finalised its Capital Reconstruction Plan. Since 10 March Dorchester has been working closely with the Trustees and their independent advisors. The Plan and an Independent Report from PwC are now with the Trustees Perpetual Trust and the Public Trust. Dorchester is awaiting final confirmation from Perpetual Trust so that the Plan can be put to Debenture holders. Dorchester believes that the relevant documents should be able to be mailed out to investors around the 26th of May and that an Investor Meeting should be able to take place on 17th June 2010. Whether that timetable can be met depends on how long it takes to get final confirmation from Perpetual Trust. A number of Investor Roadshows will be held around the country before the formal Meeting. If the Plan is approved Dorchester Finance will be out of Moratorium by 1 July 2010. The structure of the Plan is in line with earlier announcements, although one important requirement, repayment of 50 cents in the dollar to Debentureholders, has already been achieved. In essence, four securities will be issued to Debentureholders in exchange for their outstanding Debenture Stock. 1) Units in a Property Trust which will hold $33 million of hotel properties 2) Interest Bearing Secured Notes ($20 million in total) 3) 36.5 million shares in Dorchester Pacific, the same number as currently on issue, and so representing 50% ownership prior to any further capital raising 4) Options to purchase Dorchester Pacific Shares in 3 years at a set price The Plan is conditional on Dorchester Pacific raising a minimum of $8 million new capital from a proposed rights issue of $10 million (100 million shares at 10 cents per share). It is also conditional on shareholder approval and subordinated noteholder approval. Full details of the Plan will be released when all documentation is finalised. Executive Director Paul Byrnes commented: “The delay in getting the proposal to this stage has been frustrating for everyone and we apologise to investors for the uncertainty that this may have created. But, if the Plan is approved and the capital raising successfully completed the Board believes that there is every possibility that Debenture Stockholders could ultimately receive 100 cents or more in the dollar of their original Debenture Stock.”