S&P cuts credit rating of Adelaide debenture issuer Angas Securities

Standard & Poor’s has cut the credit rating of Adelaide-based debenture-issuer Angas Securities from ‘B+’ to ‘B’ and placed it on a credit watch with a negative outlook.

A rating of ‘B’ indicates the company has the capacity to meet its financial commitments but that “adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments”.

The downgrade follows S&P's revision of its outlook for Angas from stable to negative in April last year.

In January this year, Property Observer reported that Angas Securities revealed that a third of its loans were in arrears, with around $33 million of these loans more than a year in arrears.

Angas has raised $300 million from around 2,500 small investors who have invested in Angas Securities' debenture fund, which offers returns from 7.5% to 9% and principally lends the money on at high interest rates as commercial property loans.

S&P noted last year that Angas had a “sizeable portfolio of non-performing assets includes some large exposures when assessed against the company's modest capital base”.

Angas Securities and its dozens of debenture funds are listed on the small cap National Stock Exchange.

In an investor newsletter published last month, Angas said the Standard & Poor’s credit rating “is an objective, independent opinion of the willingness and capacity of Angas to meet its financial commitments in full and on time”.

In its most recent financial update following the release of poor interim results, Angas executive chairman Andrew Luckhurst-Smith says “the entire debenture funded commercial lending sector was facing significant scrutiny in the wake of two provincial companies entering receivership during the period”.

Debenture funds that have collapsed over the past year include Sydney-based Provident Capital, Brisbane-based Wickham Securities, regional Victorian-based Banksia and Gold Coast-based LM Investment Management, which had its first creditors meeting yesterday.

Luckhurst-Smith added that “both were unlisted and un-rated issuers so were not directly comparable to companies such as Angas”.

Angas Securities posted a 34% drop in profit (before tax and dividends) of $1.019 million for the six months to December 30, 2012 on higher revenues (up 19%) of $20.839 million.

The financial report shows loans totalling $238 million on the balance sheet up from $179 million in the previous corresponding six-month period.

The company also holds $33 million worth of investment property and $27 million in cash.

Luckhurst-Smith said profits were lower on the year before due largely to expenses involved in the recovery of loans and the management of several impaired loans.

He also reported that the fund had finalised negotiations for the structured sale of Fernhill, a grand residential property near Penrith, on the outskirts of Sydney, which is being transformed into 88 residential allotments and a major tourism venue, expected to generate in excess of $50 million.