Mariner in stormy seas, but founder seems to be sailing his own course

AS THE Babcock & Brown executives desperately negotiate a lifeline with their bankers, halfway up Chifley Square, at the very top of the ritzy Sydney office tower, another boom-time asset shuffler is careering towards the rocks.

Like Babcock, Mariner Financial is a stew of satellite funds laced with leverage and doused in dollops of related-party transactions. As with Babcock, it is locked in a race against time, feverishly flogging assets to extinguish its debt.

Yet Mariner has another problem. Its founder and major shareholder, Bill Ireland, was flogging his stake in the company without proper disclosure.

While he was assuring investors everything was OK last year, and buying small parcels of shares to prove it, it seems a company associated with Ireland was tipping 7.65 million Mariner shares into the market.

This stock, representing 3.1 per cent of Mariner's issued capital, was held by an entity called SAKG Funding, which Australian Securities and Investments Commission searches show was registered on September 12, 2007. One William Edward Baker Ireland is its director, secretary and sole shareholder. Its address is Corterre Park, Range Road, Mittagong, in the NSW Southern Highlands.

Commonwealth Bank registered a charge over SAKG Funding on October 15, 2007. Its address is CBA Margin Lending New Business. Ireland and Mariner are yet to tackle the question of whether Ireland's shares were subject to margin calls, or even to confirm the founder's present shareholding and the status of SAKG. After questions from BusinessDay early last week, and a subsequent newspaper report about the SAKG stake, Mariner issued a statement on Friday admitting the ASX had been making inquiries.

The statement said directors had asked Ireland to provide information in August about his share trading but made no mention of why the sale had not been revealed until November 4, almost a year after the transaction.

Further, there was no mention of why it took the non-executive directors - Liberal Party president Alan Stockdale, and David Heaney - three months to do anything about it (August to November). Does Bill Ireland still enjoy the confidence of the board? Mariner declined to respond.

That the Mariner releases to the ASX only showed the Ireland buying, not the selling, is a serious matter. Mariner shares have collapsed this year and its subsidiary, Mariner Treasury, lapsed into receivership on September 2, two weeks after the group conceded a $68 million loss for 2008.

In October, it deconsolidated two funds: Mariner German Property Trust and Mariner Japan Property Trust as the value of their properties was wound back by $18.5 million. These aren't the only vehicles in strife - there are more side deals than a Saigon cockfight and these have returned to haunt emergency efforts to rescue the head stock.

Mariner's modus operandi was to exploit the superannuation-led demand for financial products by buying property assets. It geared and repackaged them in externally managed funds - so fees could be ripped out for management, origination and structuring - then it flogged the funds to retail investors.

Distribution was ensured by dangling large commissions in front of financial planners. Credibility was ensured by the blue-chip names on the prospectuses and product disclosure statements, such as KPMG, PWC, ASX and Malleson Stephen Jacques.

Ireland had been a successful stockbroker in the 1970s who moved into property in the 1980s, setting up Challenger Financial Services in 1986.

Challenger listed in 1987 and by the 1990s, thanks to its innovative annuity product, turned into a billion-dollar enterprise with tens of thousands of retail clients. Ireland ran the operation for 16 years before he sold out to James Packer in 2003 and set up Mariner.

While head stock Mariner Financial last traded at 1.4 and depends on fees from its foundering satellite funds to survive, there appears to be some cash left in subsidiary Mariner Credit Corporation Ltd. Its parent is Mariner Retirement Solutions, which in turn is controlled by Mariner Financial.

Yet MCCL has problems of its own. Although it has $9 million in cash, its latest accounts show its assets include $8.4million in related party loans: $1.425 million to Mariner Retirement Solutions and $7 million to Mariner Financial.

A further $2.763 million had been lent to a mysterious Solutions Investment Group Trust post balance date.

The Mariner faithful can only hope that there are investment solutions. While the defunct Mariner Treasury had issued floating rate notes to retail investors, and itself invested in Mariner's German and Japanese property funds (whose debt is larger than asset values), MCCL had issued "lifestyle bonds" whose stated purpose was to deliver secure income to retirees.

Unfortunately for the bondholders, it appears a good deal of MCCL's business is invested in lending to other companies in the Mariner fee nursery.

It may be a small mercy, but the bondholders have a charge over the assets of MCCL - which, thanks to the loans of the past couple of years, now appears to hinge on the fate of other Mariner companies.

It is not pretty, especially as the lifestyle bonds were marketed to retirees. According to a marketing spiel:

"Victor and Linda Long, both aged 75, have paid off their home, which has significantly increased in value over the years - it's now valued at $800,000. But they have used up the small superannuation payout that Victor received when he retired 10 years ago.

"They don't want to sell their home ... Victor and Linda discuss the problem with their family, and also see a financial adviser to discuss their options. They think an additional $18,000 per year would give them enough income for a better life in retirement. Their adviser recommends a Series 40/10 Mariner Lifestyle Bond."

Thankfully, Mariner only managed to get $12 million worth of this product into the market. Elsewhere, however, the Mariner Coastal Land Fund and the Mariner Coastal Investment Trust are struggling. Mariner America Property Income Fund is fetching one-third of its listed value.

While the group frantically sells assets and cuts costs, some questions remain: Why has SAKG not been disclosed in Bill Ireland's director shareholding notices? What is it? How long does it take the ASX to conduct a simple inquiry into a share sale and what will it do about it?

Directors disclosing belatedly is common, sometimes they fail to disclose at all, but rarely are they found to have sold many months before, via a previously unheard of vehicle, when the company is hitting the rocks.

To read an extended version of this article (including relevant trades) and for Michael West's comments throughout the day, go to businessday.com.au