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Kerr's Torchlight fund makes bigger push across the Tasman

Wednesday 23rd November 2011

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George Kerr’s Torchlight Investment Group, a subsidiary of Pyne Gould Corp which specialises in squeezing value from underperforming assets, is making another raid across the Tasman for more distressed property.

RCL Group, an ASX-listed fund that invests in residential property developments across Australia and in Queenstown, has announced its primary financiers BOS International (Australia) and Capital Finance Australia have agreed to sign over their project and corporate debt facilities to Torchlight Real Estate Fund.

That follows last week’s news that Torchlight is likely to emerge as the winner of a management contract with ASX-listed ING Real Estate Entertainment Fund, which invests in pubs and clubs.

Torchlight has received the target board’s backing to take over the contract at no cost, with Kerr’s investment vehicle underwriting a A$15 million rights issue to the fund’s unitholders.

With RCL, the company owed A$97.7 million on its senior corporate debt facilities and A$100.3 million on project facilities as at June 30, according to its annual report. Those facilities mature at the end of next year.

It owed a further A$30.2 million on its subordinated Babcock & Brown facility. That was installed in 2009 as part of a buy-out of the management contract from Babcock & Brown.

Torchlight has approached the Australian company with a recapitalisation proposal to offer a “longer-term and more flexible capital structure,” RCL said in a statement to the ASX. “The discussions are preliminary and incomplete at this stage.”

RCL owns residential property development lots in Victoria, New South Wales, Queensland, Western Australia and Queenstown, valued at A$191.1 million in the RCL June accounts.

It has some A$55 million in loans over Australian developments and A$41.8 million lent on New Zealand projects.

In August, the Australian developer said it will use surplus cash to repay debt and has suspended any distributions for the foreseeable future after reporting an annual loss of A$35.8 million due to a A$6.2 million write-down on its outstanding loans and a A$15.7 million reduction in the value of its property development portfolio.

RCL’s shares last traded at 5.2 Australian cents per share, valuing the company at A$9.7 million by market capitalisation.

The Australian property developer owns 73 lots at Jacks Point in Queenstown and 450 lots at the Henley Downs at Wanaka through an interest in Darby Partners.

Torchlight emerged as the buyer of vacant residential land in Queenstown and Wanaka 15 months ago when an Overseas Investment Office approval with scant detail was released earlier this month. It is unclear why the OIO was involved, but foreign investment partners are presumed to have been involved in the transactions.

Torchlight was part of Kerr’s rescue package for Pyne Gould in 2009, which took the firm’s distressed loans from the Marac Finance unit, making Torchlight a cornerstone shareholder.

It gained public attention during the collapse of South Canterbury Finance after lending $100 million to the Timaru financier which had to be repaid before debenture holders under the government’s retail deposit guarantee.

Torchlight’s Australian overtures come against the backdrop of Kerr’s bid to seize control of Pyne Gould at 37 cents per share, having originally offered minority investors 33 cents a share.

Kerr and Californian hedge fund Baker Street Capital have support of 37.5 percent of Pyne Gould shareholders, including their own combined stake of about 33 percent, in a deal that would see their Australasian Equity Partners Fund take over and delist financial services company.

The original bid was panned by independent adviser Grant Samuel, which could find no compelling reason for shareholders to accept, given it valued Pyne Gould shares at 49 cents to 57 cents.

Pyne Gould’s independent directors Bryan Mogridge and Bruce Irvine weren’t swayed with the sweetener, encouraging shareholders with an appetite to eschew dividends and accept a long-term horizon to hold their shares, while recommending those who need liquidity and regular returns to sell their stakes.

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