Du Val converts mortgage fund ahead of NZX float

Investors in Du Val Group’s mortgage fund will see their money locked in until the group finalises its plans for an initial public offering on the New Zealand stock exchange, at least until the end of this year.

The offer, including a 25% sweetener for existing fund holders to leave their money in, comes as the group embarks on a restructuring of its operations, merging its property development, construction and management assets into Du Val Property Group. 

Investors in the mortgage fund, which is operated by Du Val Capital Partners, were offered the right to convert their units into a new entity, Du Val NZ. 

Du Val Capital Partners sold redeemable units under its mortgage fund to wholesale investors over the past two years. The units paid a fixed return of 10% per year, with a $250,000 minimum investment. 

Auckland financial adviser Martin Jago said one of his clients had now had $700,000 of his funds converted into the share offer, but his requests to exit the investment had not been met. That, he said, was despite adhering to the fund's three-month notice period. 

Du Val, for its part, disputes there is a three-month period and that an exit from the fund is linked only to the "nearest liquidity event". It didn't elaborate, but that is thought to mean the sale of a property.

Jago said his client, who had signed a non-disclosure agreement with Du Val, had seen it as a straightforward investment paying out a regular income.

But he had wanted to keep the investment liquid and was unaware his funds would be "locked away" until the initial public offering (IPO) was completed. The 10% annual interest payment also ceased immediately.

Under the terms of the conversion, Du Val has offered investors 1.25 times the balance of their mortgage savings in equity if they convert their fund investment into shares.

In response to BusinessDesk's enquiry, Du Val said only that not all fund holders had converted, and said also that no exit requests had been declined. It didn't elaborate on how many investors there were in the fund or how many had opted into the conversion.

It said all investors had also signed a confidentiality clause with the firm.

Singapore shelved

Jago said there had to be a question mark as to whether the listing would even go ahead, given the current property climate.

Du Val is also understood to have now walked away from plans for an IPO on the Singaporean exchange (SGX) within the next three years. The NZX listing was to have been a foreign-exempt listing following that process.

That was signalled by Du Val co-founder Kenyon Clarke in September, in order to pursue its global expansion ambitions and tap into the Asian investor market.

Its Singapore office has also now closed, though the company still has representation in Auckland, London and Hong Kong. Du Val didn't respond to inquiries about whether it would be trimming any of its 120 staff following the restructure.

It did confirm, however, that it will continue to commit resources to build its ‘proptech’ venture under Du Val Global, which has taken more than two years to develop, at a cost of US$15 million (NZ$26m).

FMA

The Financial Markets Authority (FMA) told BusinessDesk that while it was "aware of Du Val's plans", any proposed public offering was the responsibility of the company directors and didn't need to be supplied in advance to the FMA.

The market regulator took the company to the high court last April on the basis that it was targeting "inexperienced investors". In July, Du Val lost an appeal against the court ruling that it pull its "misleading" ads. 

The firm, founded in 2013 by Kenyon Clarke and wife and chief executive Charlotte, has a portfolio of nine large-scale apartment developments in South Auckland with an estimated book value of $750m.

Its completed developments include the $80m, 101-unit Rātā Terraces in Papatoetoe and the 151-unit Lakewood Plaza in Manukau.  

Lakewood Plaza has been fraught with build delays, quality issues and cost overruns since work started in 2017. It was eventually finished in October 2020, about 20 months behind its expected completion date.

After going into arbitration with its build partner Downey Construction, Du Val had its application to liquidate its partnership with Downey thrown out by the high court in December.

Kenyon Clarke said its pipeline of work was valued at about $600m across seven developments. The most significant was the Mountain Vista Estate, a 180-unit development in Māngere, with a build cost of $150m.

The firm has also tapped into $100m of institutional financing secured from Canadian asset manager Fiera Capital to complete three Auckland townhouse developments. 

Clarke said the funding will go towards the construction of the off-the-plan 79-unit Te Awa Terraces in Māngere East and West Auckland’s Sunnyvale Terraces and Edmonton Mews, with a combined 103 units.