Property fund manager Opus Capital Group has hit back at a rival that is trying to replace it as the responsible entity and manager of the Opus Income & Capital Fund No 21 (Opus 21).
In a notice to financial advisers and unit holders, Opus scotched Century Funds Management's (CFM) criticism of how the $240 million fund was being looked after.
Opus said it continued to diligently manage Opus 21 by reducing its debt via a successful rights offer, retaining key tenants and signing significant new leasing deals.
The company warned that should CFM become the new responsible entity and manager of the fund next month, there was a significant risk the fund's financier could demand a freeze on unit-holder distributions, impose onerous penalty interest rates and even appoint a receiver to undertake a fire sale of the assets.
Opus also claimed CFM, owned by Over Fifty Group (OFG), had not been upfront about its own problems.
"Property funds managed by Century have suffered numerous distribution cuts, forced asset sales and significant valuation reductions," Opus said.
"Property funds managed by Century are under significant pressure from banks due to high loan-to-valuation ratios. Redemptions from policy holders far exceed new applications.
"In our view, Century may face significant impairment issues across their balance sheet."
The comments by Opus follow CFM's own letter to financial advisers and unit holders, which claimed to outline the problems with Opus and the fund.
"Century believes that there are excessive fees which can be charged by Opus Capital from your fund on the sale of a property or the transfer or redemption of a unit, which have the potential to reduce the value of units in the fund," OFG chief executive John McBain said.
"The fund's gearing is high at 76.7 per cent and it has reported in its 30 June 2010 accounts breaching at least one of its key financial covenants.
"The lender to the fund is Suncorp and the Suncorp facility is due for repayment in January 2011."
McBain said that to ensure the ongoing support of any lender to the fund, the fund needed to raise additional capital and retire debt to an acceptable level.
"Century's strategy is to secure an extended loan term in return for the reduction in debt, and so to avoid the prospect of selling fund property at the bottom of the property cycle, which threatens unit-holder value and limits the potential upside on market recovery," he said.
"Century is aware that some of the financial planning groups representing clients in the fund would be apprehensive supporting any form of equity raising whilst Opus Capital remains as responsible entity or manager of the fund."
He also pointed out that due to the alleged breaches of its Australian financial services licence (AFSL), ASIC cancelled Opus's AFSL in August 2010.
"While ASIC's decision was overturned by the Administrative Appeals Tribunal, ASIC in late October 2010 filed an appeal with the Federal Court," he said.
"Century believes that due to the uncertainty over Opus Capital's AFSL you would be better served by a strong responsible entity/manager, not facing conflicts with ASIC.
"If elected at the meeting of Opus unit holders next month, CFM proposes to immediately replace Opus as responsible entity and separate the Opus fund completely from the Opus group."
