• Valad will not accrue the A$2.5m forecast FY09 coupon associated with these projects
• Other Petrac projects being monitored closely, step in rights to be exercised where appropriate to protect investment and realise profits where possible. Likely outcomes will become clearer over coming weeks
SYDNEY: Valad Property Group (ASX:VPG) today advised that receivers have been appointed to three projects owned by Petrac, a Valad Capital Services’ (VCS) customer.
Two of the projects are located in Noosa on Queensland’s Sunshine Coast, and one is in Byron Bay on the New South Wales far north coast. Valad’s exposure to these projects is A$31.1 million by way of preferred equity which is secured by second mortgages. Valad had further undrawn commitments of A$3.9 million relating to these projects, however the appointment of receivers has effectively cancelled this obligation.
In addition to these projects, Valad has a total of A$44.4 million invested in three other Petrac projects and five retirement joint venture vehicles with Petrac and Harvest. Valad’s undrawn commitment associated with these projects is A$49.8 million.
Valad has step in rights in relation to development management services across its VCS book and is in discussions with the receiver and other senior lenders in relation to the exercise of these rights for relevant Petrac projects.
Jeff Locke, Valad’s CEO for Asia Pacific said “If required, Valad has in-house development management expertise to step in to control these projects. We have a Brisbane office of six as well as a development skill base at the corporate head office in Sydney. “
“Discussions with senior lenders have just commenced and are progressing openly and with a view to preserving the value of stakeholders’ investments,” added Mr Locke.
Referring to the priority of payments for preferred equity investments, Mr Locke stated “It appears that the continued deterioration in market conditions has triggered this situation and the project feasibilities have consequently suffered. We have every intention of involving ourselves to the appropriate level under our step in rights to protect our investment, and to realise project profits if possible”.
The majority of Valad’s exposure to Petrac is via preferred equity at the project level, however, Valad also had a A$10.7 million investment at the corporate level by way of a convertible note. The Petrac convertible note was fully written-off at the time of Valad’s FY08 results, and represented the majority of the A$14.6 million Asia Pacific VCS write down.
Forecast FY09 coupon income relating to the three projects in receivership was A$2.5 million, while FY09 forecast coupon income relating to the balance of the Petrac preferred equity investments is A$5.8 million.
Valad’s strategy continues to be to reduce its balance sheet exposure to VCS via realisations, recycling positions into funds and the introduction of third party equity. This strategy is a priority for the Group with early cash realisations sought where possible and step in rights to be exercised where necessary.
In the case of the Petrac positions, each project will be assessed on its merits, and our position maximised through our step in rights.