FEA collapse creates headache for PIS

The apparent demise of Forest Enterprises Australia (FEA) will cause headaches for a number of financial planning dealer groups, including one of Australia's largest groups, Professional Investment Services (PIS).

PIS has a strategic partnership with FEA, which includes a minority shareholding in the listed agribusiness company in addition to the support given to the company from its financial advisers.

PIS managing director Grahame Evans acknowledged that due to the group's size, it was likely to be one of, if not the biggest, supporter of FEA's managed investment schemes. However, PIS said its total funds invested in FEA now represent less than 0.8 per cent of its total funds under advice. Evans said around 200 advisers had written FEA investments, with around $10 million written last year.

The group has been a strong supporter of agribusiness managed investment schemes. At the time of Great Southern's collapse, PIS was its second largest single investor. But Evans is standing by the FEA investments, saying the circumstances of the business’s entry to administration and the potential outcome for investors were different to those of Great Southern and Timbercorp.

PIS undertook a review of its exposure to the agribusiness mid-last year following the turmoil in the sector. In announcing the resulting decision to stop new agribusiness investments for this financial year, Evans said the group was concerned in part about the financial uncertainty in the sector. FEA entered voluntary administration yesterday following the withdrawal of support by its major financiers, the Commonwealth Bank of Australia and ANZ.

FEA said its financiers had placed the FEA board in an untenable position by preventing the company from accessing funds sufficient to operate its normal business activities.

Evans described the banks’ approach to FEA as “quite malicious in a lot of respects”. Evans said he was confident the plans FEA had in place to reposition the business would have been successful had the group’s financiers granted the group more time to do so.

Evans said FEA was in “far better shape” than either Great Southern or Timbercorp on their entries to administration.

“All the trees are planted and maintenance up to date,” Evans said.

“It’s a perfect example of something they [the banks] didn’t have to do.”

PIS also has partnerships in place with Almond Investors Limited, Barossa Vines, Olive Growers Australia, TFS, Willmott and Elders Forestry and Gunns Plantations, both of which have significant shareholdings in FEA.

Despite PIS’ recent move to temporarily remove agribusiness managed investment schemes from its approved product list (APL) due to the nature of agribusiness investments, many investors remain locked in to the schemes.

Evans said the group would work to ensure that it holds the receivers and administrators of FEA “accountable for the issues associated with the differences between the rights of unit-holders or growers and shareholders”.

Any potential legal action from investors regarding advice to invest in FEA would be a significant blow to PIS. It has already taken a $5 million hit over recommendations to invest in Westpoint products. The group also paid $26 million in compensation to clients it advised to invest in a Sydney property syndicate — owned by a subsidiary of its parent company — which failed to perform.

Last financial year PIS’ parent company, Professional Investment Holdings, breached the terms of an $11.9 million loan facility that supports MIS loans. The repayment deadline was extended to November 2011, but $3.9 million of that must be paid before the end of October this year, with $3.4 million of that to be repaid by its MIS investors.