Troubling times for a man born to invest

Mark Hotchin.
Mark Hotchin.
Like the sports cars he loves to collect, the property market has provided Hanover Group co-owner Mark Hotchin with an exhilarating ride to the front of the pack.

But while he has arguably shown great skill in keeping Hanover on track for so long, the market has taken such a stomach-churning turn for the worse that Mr Hotchin looks in danger of spinning out and crashing badly.

Should investors reject the restructuring plan Hanover's management and advisers are now working on, Mr Hotchin's company will join Nathans Finance - a company linked with his brother John - on the sad list of recent receiverships, putting $554 million of retail investors' cash at risk.

Property investments - as well as finance companies - are something of a family affair for Mr Hotchin.

If not born to be a property investor, he was certainly raised to be one.

After leaving school, he went to work for his father, who had a joinery factory but was also involved in speculative property development.

A few years later, he began investing on his own account. In 1982, at 23, he cross-leased a Parnell section and built a townhouse at the front, a familiar play now but not so common then.

By 1987, he was back working with his father, just in time for the 1987 crash.

The Hotchins avoided the worst of the market fallout by quickly selling out of commercial property and buying into rental flats.

Showing a gift for being in the right place at the right time, Mr Hotchin's big break came in 1991 when he bought the unfinished Regency Court development in St Heliers from receivers.

He paid about $6 million for the property in a depressed market that was just beginning to recover. He sold it for $10 million.

Around this time, he also bought Corporate Cabs, a small company that gave him the regular cashflow that property investment did not.

In 1995, he bought Matarangi Beach Estates in the Coromandel from Howard Patterson for about $26 million, again showing good timing by buying the project just as coastal property was on the way up.

Two years later, Mr Hotchin met Eric Watson at a ball at Auckland's Regent Hotel. The pair struck up a firm friendship, sharing each other's passions for fast cars and horses.

Mr Hotchin, having been on the borrowing side of things, became interested in lending. When the chance to buy a stake in Elders Finance came up in 1999, he told Mr Watson, who invested on a passive basis. The pair took a 30% stake.

After seeing the business from the inside, they arranged to buy out the remaining shareholders in December that year.

With total assets of $100 million at the time, Elders formed the core of what would become Hanover Finance.

In late 2001, Mr Hotchin and Mr Watson consolidated their finance and investment assets to create Hanover Group.

The businesses rolled together included Elders Finance, Nationwide Finance, Leasing Solutions, Elders Home Loans and Hanover Securities.

The group had assets of $650 million, making it New Zealand's third-largest finance company at the time.

It was a busy time for the pair. Other buys included Pacific Retail Group and the Warriors rugby league team. Meanwhile, Mr Hotchin sold his Corporate Cabs business.

From the start, Hanover Group appears to have largely been Mr Hotchin's baby. PRG was more Mr Watson's project.

Nevertheless, Mr Hotchin took a seat on PRG's board after buying shares in the company from Mr Watson in 1999.

When Mr Hotchin sold some shares for a tidy profit, the company got a ticking off from the Securities Commission for breaching insider trading rules.

A couple of years later, Mr Hotchin's name came up when his brother John's Vending Technologies came in for some scrutiny over some related party lending.

According to company documents, Mark Hotchin had borrowed $3 million from Vending Technologies. These debts were transferred over to Nathans Finance, the finance company formed by VTL in 2001.

NZX's Market Surveillance Panel took a look at VTL's affairs in 2003 and while it found instances of related party lending, it did not censure VTL.

Last August, Nathans Finance become the fifth finance company to go belly up in a string of failures and defaults that yesterday totalled 26.

Nathans owed $166 million to about 6000 investors. The New Zealand Herald understands Mark Hotchin is not one of its outstanding debtors.

But with VTL owing Nathans $110 million, it was clear the finance company largely used to fund its parent's activities.

While Mr Hotchin and Mr Watson haven't tapped Hanover Finance to fund their property investments to the same extent VTL tapped Nathans, the amount of related party lending taking place within Hanover Group has attracted a great deal of criticism.

Through Axis Property, formerly Hanover, Mr Hotchin and Mr Watson have got some big risky property developments on the go, including some substantial projects in the rapidly cooling Queenstown market.

Mr Hotchin clearly has some affection for Queenstown; it's where he chose to marry Amanda Hurcombe in 2003 at historic St Peter's Church. Among the 100 or so guests were Mr Watson, Sally Ridge and Adam Parore.

A business commentator told the Herald Mr Hotchin appeared to favour the company of a trendier, less business-focused crowd.

Another finance industry figure who has had dealings with Mr Hotchin says he's "a clean-cut, confident, well spoken man" who likes to spend time with his wife and their young family.

While Mr Hotchin clearly expects to have a huge income and assets, he has been "generous to various charities" and "likes to be seen as a good person around Auckland".

But make no mistake, says the finance industry figure, Mr Hotchin is an astute businessman who's made some good decisions, including his move out of the Auckland apartment market a couple of years ago.

In fact, more than a few commentators have expressed surprise over the past two weeks that Hanover, with its exclusive reliance on retail debenture funding, managed to last as long as did before throwing in the towel and asking investors for extra time.

In order for Hanover's restructuring plan to fly, those same investors will need to be assured they can trust Mr Hotchin and his team.

The industry figure spoken to believes Mr Hotchin never lied to him during any of their dealings.

But he was aware that Mr Hotchin, at times, may not have been telling the whole truth.

At the very least, he found Mr Hotchin "polite and respectful", although he understood that wasn't always the case when Mr Hotchin dealt with his employees.

"Behind closed doors, he's the sort of guy who gets his own way with board and management 100% of the time.

"That's probably cost him, because any blind spots he might have, he's had nobody to persuade him to be cautious."

Within a day of Hanover announcing it was freezing payments to investors last month, the National Business Review's Rich List was published ranking Mr Hotchin in 40th place, with a personal fortune estimated at $200 million.

This included his Hanover stake and a $30 million mansion being built in Auckland's exclusive Paritai Dr which includes garaging for 12 cars, presumably to accommodate the sports cars he collects.

Also listed among Mr Hotchin's assets was one of Waiheke Island's best rural waterfront properties, Boatshed Bay, near Palm Beach, as well as his part share in the Warriors league team.

But the insider believes the NBR got it wrong when it came to the value of Mr Hotchin's Hanover stake.

Clearly teetering on the brink of receivership, the company is not worth as much as it was a while ago and the insider believes Mr Hotchin and Mr Watson may now be kicking themselves for turning down an offer for the company a year or so ago understood to be more than $400 million.

At that point, however, with the company posting an annual profit of $60 million, there was every indication Hanover would survive the finance-company meltdown that had already claimed several companies.

Talking about his past triumphs in the property market, Mr Hotchin has mentioned the kind of luck that is created by being in the right place at the right time.

But being the owner of a big finance company heavily exposed to property development and exclusively reliant on retail debenture funding in the current market conditions suggests Mr Hotchin has now found himself in exactly the opposite circumstances.

His fortunes may well now have shifted firmly into reverse. - Adam Bennett.

 

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