Re: Octaviar MFS Premium Income Fund PIF
Dear Investor,
The financial services industry is experiencing a
most difficult period. The All Ordinaries index
has dropped by 28.15% since 1 July 2008, with
almost half of that decrease occurring in the 2
weeks since our general meeting of unitholders
was held on 15 October 2008.
The global financial crisis has seen the federal
government take extraordinary steps to attempt to
stabilise the nation’s financial system, including
the unprecedented step of guaranteeing all bank
deposits.
In response to these measures, all Australian
mortgage funds have experienced great
difficulties and many are frozen. It seems that an
unintended consequence of the announcement is
the creation of concerns amongst investors about
the security of income investments not covered by
the federal government guarantee. There is
currently a combined $22 billion of funds frozen
in the mortgage fund sector in Australia.
Historically, mortgage funds have provided
investors and borrowers with competitive
alternatives to traditional lenders. Recent market
events have seen this change. These fund
managers would have typically been the logical
place for borrowers from the Premium Income
Fund to seek to refinance once their loan term had
come to an end.
The availability of credit has tightened and this
had the effect of purchasers of the underlying
assets from the Premium Income Fund, or from
the Fund’s borrowers being unable to raise the
required finance to complete the transactions.
The 3 settlements planned for October 2008 with
planned realisations of over $25 million have
failed to settle. Consequently the Premium
Income Fund debt remains at $9.5 million and the
Fund is unable to pay an October distribution.
Asset realisations for the period
2 May 2008 to 24 October 2008
The following assets have been realised between
2 May 2008 and 24 October 2008.
Estimated
Realisable Value
at 31 May 2008
Actual
Realisation
Mortgages
Hastings Point NSW
(refinance)
$14 million $12.659 million
Sylvania NSW $19.682 million $20.018 million
Creswick VIC (partial
sale of underlying assets)
$2.434 million $2.434 million
Brooklyn West VIC $0.5 million $0.549 million
St Leonards NSW $8 million $8 million
Asset backed securities
Sydney based company
(partial realisation of
underlying assets)
$2 million $2 million
Living and Leisure
Australia Trust loan
(partial realisation)
$10 million $10 million
Diversified trust $10.084 million $10.2 million
Property Fund $17 million $17 million
Cash $15.417 million $15.417 million
Total $99.117 million $98.277 million
Wellington continues to work closely with each
borrower to facilitate the repayment of their
finance facilities in this difficult financial market.
In circumstances where the borrowers are
ultimately unable to repay, the Premium Income
Fund has first ranking security over these assets
and will take appropriate action to ensure
Unitholder’s funds are secured against the asset by
becoming mortgagee in possession.
Wellington remains focussed on orderly asset
management and realisation to enable cash
payments to be made to Unitholders.
Premium Income Fund
Investor Update: 28 October 2008
For further information please contact:
Jenny Hutson
Chairperson
Wellington Capital Limited
as responsible entity of the Premium Income Fund
ACN 114 248 458 AFSL 291 562
Phone: 1300 854 885
Email:
investorrelations@newpif.com.au
Bond Street Custodians Limited –
Federal Court Proceedings
As notified to Unitholders and the market on
Friday 24 October 2008, Bond Street Custodians
Limited filed a claim against Wellington
Investment Management Limited on
16 October 2008 being the day after our general
meeting for $16.254 million in relation to a
redemption request for 16.254 million units in the
Wholesale Premium Income Fund which was
lodged on 21 January 2008. This was shortly prior
to the suspension of redemptions.
Wellington Investment Management Limited
intends to vigorously defend the claim on behalf
of all Unitholders.
The underlying Unitholders of the 16.254 million
units are clients of Avenue Capital Management
Limited (‘Avenue’), a financial planning
organisation.
Paul Manka and Michael Hiscock were members
of the board of Avenue at the time the redemption
request was lodged. Paul Manka was a director of
MFS Limited at that time, and is now Chairman.
Michael Hiscock was a director of MFS Limited
until 16 January 2008. Paul Manka resigned from
the board of Avenue on 4 February 2008, and
Michael Hiscock on 4 June 2008.
The legal action is currently scheduled to be
before the Court on 14 November 2008.
Octaviar Limited –
Support Facility and Supreme Court
proceedings
The first meetings of creditors of Octaviar
Limited and four of its subsidiaries, including
Octaviar Administration Pty Ltd were held on 24
September 2008.
A further creditors meeting is due to be held by 19
December 2008. The board of Wellington is in
continued discussions with the administrator with
a view to recovery of the $50 million Support
Facility and $147.5 million the subject of legal
proceedings before the Supreme Court of
Queensland.
October cash payment
The first instalment of the cash payment was
scheduled to be paid by the end of October 2008.
The board of Wellington Capital Limited has
resolved that in view of the extraordinary market
instability and the current inability of borrowers
of the Premium Income Fund to refinance their
debt facilities away from the Premium Income
Fund, cash payments to investors cannot proceed
until there is more certainty.
It is a very difficult and uncertain time, and the
board is aware of and concerned about your
economic hardship. I assure you that the team at
Wellington is working hard to ensure the value of
Unitholders’ investment in the Premium Income
Fund is maximised.
Wellington, as you are aware, will not receive any
management fees from the Premium Income Fund
until after cash payments totalling 3 cents per Unit
have been made to all Unitholders