Small investors hit as fund manager Provident Capital bought down by bad property loans

Fund manager and non-bank lender Provident Capital Limited has been placed in the hands of receivers PPB on the orders of the Federal Court.

The court order follows Provident’s $120 million fixed interest debenture fund being temporarily frozen last month with 3,500 small-time investors having an average of $30,000 invested in the fund.

A report last month by PPB found a $28 million gap between Provident’s property valuations and PPB’s assessments.

The court appointed Phil Carter, Tony Sims and Marcus Ayres of PPB Advisory as receivers following an application by Australian Executor Trustees Limited (AET), a trustee for Provident Capital debenture holders.

AET expressed concerns in court, supported by ASIC, that there a “deficiency in [Provident’s] net tangible assets available to meet the claims of debenture holders”.

Property Observer understands the receivers will be seeking to ensure an equitable return for all investors which have investments that mature at different points in time.

A meeting of debenture holders is scheduled to take place in a month’s time.

The appointment of receivers was contested by Provident Capital.

AET began its court proceedings two weeks ago.

Provident operated as a registered managed investment scheme raising money from investors through fixed-term investments, a high-yield mortgage fund a monthly income mortgage fund.

The money raised was then on-lent to property developers – mainly in NSW and Queensland, with News Limited reporting that these including Warren Anderson, Donna Batiste, and Paul Hanna.

Many of these mortgages have not performed while the assets secured against them have also devalued in some cases.

Provident provided a range of mortgage products and positioned itself as specialist lender in the low-doc space.

According to receivers PBB, there are 3,500 debenture holders who have invested in Provident Capital’s debenture product.

Half-year results to December 31, 2011 show that Provident Capital made a $9 million loss with its equity capital ratio 10 times lower than the benchmark set by the corporate regulator.

This article first appeared on Property Observer.