Excellent post jcThe ARF ArticleCity Pacific founder's $6m...

Excellent post jc

The ARF Article

City Pacific founder's $6m margin loans
23 Feb 2008 I The Australian Financial Review | Paddy Manning
Phil Sullivan, the founder and managing director of controversial Gold Coast funds manager and property financier City Pacific, has margin loans valued at about $6 million over his 27.5 per cent stake in the company.
Hedge funds using short-selling strategies have been targeting companies in which principal shareholders have margin loans over their holdings, such as Allco Finance Group and MFS Ltd.
Mr Sullivan said his margin loans from a company called Leveraged Equities were insignificant to the company's financial situation.
"I have the facility to pay those out on 24 hours' notice," Mr Sullivan said. "If anybody wants to short stock on the understanding I'm going to be forced into a position, let them do so."
City Pacific has been aggressive as a lender whose mortgage book includes developers such as Sunland, Craig Gore and Craig McDermott, and as a principal in its own right. It has also been an on-again, off again suitor of MFS.
Mr Sullivan's stake was valued at $126 million at Friday's close of $2.80 - down 15o, or 5 per cent on the day -following the announcement a week earlier that the settlement of City Pacific's acquisition of Mariners Cove on the Gold Coast had been extended until April 4. City Pacific denied the extension was due to an inability to fund the acquisition, saying it had placed $15 million in trust with the vendor's solicitors.
City Pacific's accounts for the December half showed a net profit after tax of $27.47 million but a net cash outflow of $20.4 million and $2.7 million in cash on hand.
Chief financial officer Adam Purss told the Weekend AFR the accounts were unaudited because City Pacific had been busy conducting due diligence on MFS's financial services operations. He said the numbers had been agreed with auditor KPMG a week ago and Mr Sullivan said the accounts would be signed off "today [Friday] or Monday".
Mr Purss denied the company had a cash flow problem and said net cash flow was positive if $29.8 million in financed payments for inventories were added back.
City Pacific's accounts filed on Thursday note that on December 1 the company had withdrawn financial support for two of its managed funds - including the largest, the City Pacific First Mortgage Fund - should they suffer a capital loss, or bad loan.

Mr Sullivan said on Friday that neither City Pacific nor the Public Trustee of Queensland had ever guaranteed repayment of interest or principal and the "deconsolidation" of the two funds was an accounting issue.
Mr Purss said the deconsolidation had no impact on the funds’ redemption facility and analysts and investors briefed on Friday "all agree that this is the appropriate treatment".
Mr Sullivan said the First Mortgage Fund had dropped from $1.03 billion to $940 million in the December half due to negative publicity but "we would be back to net inflow now".
He estimated investments totalled between $10 million and $20 million last month.


KEY POINTS
* The loans are over his 27.5pc stake in the company.
* But he says they are insignificant to its financial situation.