Property Group on verge of collapse - The Age 6-6-08

TROUBLED property group Octaviar is on the verge of collapse after Public Trustee of Queensland, an arm of the Queensland Government, applied to wind up the group and some of its satellites over the payment of $351 million.

In a damning statement yesterday, acting public trustee Patrick Wedge said it had decided to act after trawling through Octaviar's recently released half-year financial results, which revealed $1 billion in write-downs. "The trustee is of the view that the time has come for the group's affairs to be under the control of an independent liquidator whose first duty is to the creditors, and for this process to be supervised by the court," Mr Wedge said.

"The trustee is acting on behalf of noteholders and considers their interests to be of central importance."

Octaviar, formerly known as MFS Ltd, will fight the move in the Supreme Court of Queensland on July 16, but could be forced into the hands of corporate undertakers well before then if Public Trustee of Queensland decides to appoint administrators.

It is believed that the terms of the debt arrangement express that Octaviar must demonstrate $280 million in net assets each month.

Octaviar company secretary David Anderson has previously said the group did not have the $351 million to repay the trustee. The trustee's move follows a National Australia Bank demand for Octaviar to repay an outstanding $40 million debt. And Challenger Managed Invest- ments is demanding repayment of $100 million in bonds originally expiring in November 2011.

If Octaviar finally buckles under the mounting pressure from creditors, it will bring to an end its colourful life as a public company in which it churned through hundreds of millions of dollars in shareholders' funds and a coterie of directors, including former chairman and politician Andrew Peacock, who quit only 30 days ago.

It could also spoil a separate rescue deal for former Octaviar spin-off, aquariums and Victorian ski fields operator Living and Leisure Australia, which is locked in talks with a private equity firm owned by James Packer's Consolidated Press Holdings.

At MFS, co-founders Michael King and Phil Adams unleashed an aggressive growth strategy with dreams of copying the Macquarie Bank empire. Thanks to cheap debt, MFS went on an acquisition binge, buying almost everything in sight and opening offices in Dubai. At one stage BRW estimated Mr King and MFS had a joint fortune of $370 million.

Last year's credit crunch and the excessive cost of carrying its debt finally put an end to the Octaviar party.

Current Octaviar chief executive Craig Chapman told BusinessDay yesterday Octaviar was solvent. But he said he believed the trustee had the power to call in external administrators.

"With their powers as trustee? Well, if they are acting on behalf of noteholders 'yes' but as I said, the noteholders we have been speaking to have never, this has never, entered their mind, because they believe that there is no value winding it up and going into liquidation (as) they are going to realise a lot less."

But Public Trustee of Queensland, Australia's largest public trustee, seems determined to extinguish Octaviar's corporate life after attempts by the company since January to sell parts of its business and pay off about $600 million in debt. "It is our assessment that the half-yearly accounts reveal some concerns and in particular, the sales of assets which involved large write-downs in book value," said Mr Wedge.

Octaviar sold a 65% stake in its tourism asset, Stella, this year to private equity player CVC Asia Pacific, but that constituted a default on the notes attached conditions. It also was forced to write off $590 million in losses incurred by the Stella hospitality group.

Public Trustee of Queensland is arguing the default means the face value of the notes and interest, together totalling $351 million, was due by last night.

Public Trustee of Queensland has moved quickly to secure what assets might remain in the Octaviar empire, filing applications with the Supreme Court to wind up Octaviar as well as Octaviar Investment Notes, Octaviar Investment Bonds and Octaviar Financial Services.

Mr Chapman said the company was working through its restructure strategy. He denied the trustee notice to pay up was valid and that the $351 million was not due to be paid until the end of 2011.

"They are claiming there has been a trigger event," he said. "We are claiming we haven't (defaulted)."

Mr Chapman added he believed the trustee was not acting in noteholders' best interests.

"They're the trustees of the notes, the noteholders are also a bit perplexed as to what PTQ have gone and done here because the noteholders haven't asked for that to be done," he said.

"We have been talking to the noteholders … keeping them updated and talking to them about a possible resolution."

The Octaviar board is fighting a war on many fronts. Citigroup has given chairman Paul Manka and a former director, Michael Hiscock, one week to repay $10.6 million debt, plus court costs.

Octaviar shares have been suspended from trading since January 18.