Bank Puts Freeze On Mfs Fund

TROUBLES continue to mount at the Gold Coast property group MFS with its unlisted investment vehicle, MFS Premium Income Fund, now effectively in the hands of its banker, the Royal Bank of Scotland.

The fund announced last week it had defaulted on a $184 million loan from the bank, which means the debt is payable on demand.

The two parties have agreed on a "standstill agreement", but the stay of execution is only in place until Monday while they negotiate an "orderly realisation of assets to repay the loan". Failure to extend the agreement could mean the fund is placed into administration.

"Under the terms of the standstill agreement [the MFS fund] cannot deal with the assets of the fund, including for the purposes of making distributions or paying expenses on behalf of the fund, without the approval of the bank," the fund said in its latest statement to shareholders.

The 11,000 investors who put $770 million into the fund face significant losses. MFS froze redemptions from the fund in January to stem withdrawals. Two weeks ago investors were informed the fund has ceased distributions. The latest announcement said the uncertainty surrounding MFS had affected the recoverability of certain assets of the fund and its auditor believed "there is material uncertainty as to whether the trust can continue".

The fund has a $67 million loan to another cash-strapped MFS entity, MFS Living and Leisure. The fund also has a $40 million exposure to a failed development in Sydney's south.

The announcement adds fuel to Friday's shareholders' meeting, where MFS will ask shareholders to change its name to Octaviar.

The MFS chairman, Andrew Peacock, is also expected to provide an update on the company, whose shares have not traded since January 18 - when they dropped 69 per cent to 99c - amid concerns that the group faces collapse.

Golf Australia said yesterday it would "part ways" with the cash-strapped MFS after three years of sponsorship that included naming rights to the Australian Open.