Investor funds worth $154 million frozen in rural non-bank lender Gippsland Secured Investments
Another non-bank mortgage lender that uses money raised from small investors to fund property developments has run into trouble.
Bairnsdale-based Gippsland Secured investments (GSI), which has raised around $154 million from just over 5,000 savings accounts, has suspended further redemptions of ‘at call’ and term investments.
The funds have been frozen as of July 19 with GIS warning that information from an ongoing review of “certain loan assets and security properties” will show that “there will be material increase in GSI's provisions for impairment of loans".
Selling its debentures and loans via six branches in East Gippsland, GIS offered fixed investments offering returns of 5.2% per annum for three months rising to 5.6% for 24 months with ‘at call’ investments offering a 5.2% return for SMSFs only.
“Mortgage secured loans for any purpose,” says the GIS website.
GIS reached the $150 million investment funds milestone in July last year with the funds used to finance “local people and projects within the Gippsland region”. Photos on the website show residential development projects.
It reported a loss of $63,000 for the six months to December 2012 with $126.4 million lent out for terms of less than 12 months and $2.9 million worth of loans impaired.
It follows the collapse of another regional Victoria debenture issuer and mortgage lender Banksia and the collapse of Queensland-based LM Investment Management and Wickham Securities and NSW-based Provident Capital.
All offered investors – mainly ‘mom and dad’ investors and retirees with self-managed superfunds – high returns with the funds lent on as mortgages, often on high risk property developments.
In many cases these companies acted as lender of last resort because the developer could not secure funds from the mainstream lending market.
GIS’s most recent Summer 2013 newsletter mentions that its final results were “hindered slightly by the adverse fallout from the demise of Banksia Finance (based in Kyabram) and the purchase of Southern Finance (based in Warrnambool) by Bendigo Bank.
“Although having no direct connection with either company, we do operate in the same industry and so it’s no real surprise that the negative sentiment impacted on us to at least some degree,” wrote Glenn Sanford, managing director of GIS.
“GSI continues to actively manage its key financial drivers such as liquidity and capital on an ongoing basis and we are comfortable with the current settings.
“GSI is an independent business, operating a straight forward business model that has stood the test of time,” say the directors in the newsletter.
Sanford along with another director, John Stephenson, are the treasurer and chairman respectively of Provic Group Inc - an industry body representing nine debenture/note issuing companies based in regional centres across Victoria and southern New South Wales.