It has not been a good week for George Kerr’s Pyne Gould Corporation (PGC). First, Mr Kerr’s long-time friend and PGC Managing Director, John Duncan resigned from the company and cut all ties with any of its subsidiaries that he was a director of and also gave notice of intention to resign from the much trouble EPIC vehicles board as PGC’s representative. This was followed a few days later by the resignation of KPMG as the PGC’s Group’s auditors. It is a never a good sign when an auditor resigns and I struggle to remember another instance in the last 14 years I have been a market participant. KPMG sited their reasons for resignation being due to: “Unresolved differences as to whether certain transactions should be disclosed as related party transactions, and concerns over the adequacy of governance and management of financial reporting”. As if things could not get worse, the Financial Markets Authority is now investigating related party transactions involving PGC.
PGC has a history of poor disclosure and this is especially evident with regards to Torchlight Management Limited. Post the in-specie distribution of Building Society Holdings (Heartland Bank) and the takeover offer from Agria for PGG Wrightson (PGW); Torchlight retained holdings in both PGW and Heartland Bank. The finance business from PGW was subsequently sold to Heartland Bank and the proceeds from the sale of PGW were available to provide equity financing assistance to Heartland Bank should Heartland request financing for an acquisition. The other holding in Torchlight was the EPIC infrastructure fund distributed through Macquarie in New Zealand. The Fund, a heavily debt laden investment vehicle with minority holdings in Thames Water in the UK and Moto service stations in the UK became an investors nightmare. The Fund was heavily debt funded and the currency exposure was not well hedged. It was supposed to be a stable high dividend paying Fund. The fees were high and lack of control of the underlying investments led to investor dilution and the dividend being reduced as Moto Service Stations decided to take a pro-growth rather than income generating strategy. The issues for the Fund were not well explained or highlighted leaving investors stuck in an illiquid investment that many were unable to sell out from.
The current issues highlight how important full disclosure and high levels of Corporate Governance are for all investors.