MANAGED investment scheme investors are struggling to repay Timbercorp and Great Southern Ltd loans in the midst of the current financial crisis.
Timbercorp's 2008 statutory accounts, released last week, show a surge in overdue loan repayments on the $481 million it has lent to investors.
The accounts show Timbercorp holds $62.6 million of loans with overdue amounts, compared to $44 million in 2007.
Timbercorp rival Great Southern Ltd also faces problems, with its doubtful debt allowance blowing out from $5.6 million in 2007 to $56.9 million by September 30 last year.
GSL's financials state the majority of its MIS sales were made on the back of investor loans.
Investors contacted by The Weekly Times said they were unaware of the scale of the on-going management fees when they signed up to invest.
"You don't look past the initial tax benefit," one investor said. "You're completely reliant on your accountant for advice."
One Tasmanian Timbercorp investor told The Weekly Times he'd had enough of paying ever increasing management fees for little return and had rescinded his investment.
Timbercorp spokesman Matt Trewin said investors were fully informed of the ongoing management fees, which were detailed in each project's product disclosure statement.
Mr Trewin acknowledged there was an increasing number of investors who were defaulting on loan repayments. However, he said the recent rise in overdue loans came on the back of increased borrowings.
If a Timbercorp investor defaults on a loan or management fees the company has the right to sell their investment at a "public auction".
Mr Trewin said investors who borrowed money from the company had signed a legally binding agreement and that anyone in financial distress should contact Timbercorp's arrears manager.
Since 1992, Timbercorp has raised more than $1.7 billion in funds invested into agribusiness projects by more than 18,000 investors from around Australia.
MIS operators have become masters at encouraging investors to pour money into horticultural and timber projects in return for a tax saving of 40-45 cents in the dollar.
As an example:
An investor pours $50,000 into MIS projects, borrowing 90 per cent of the money from the operator.
The investor effectively reduces his taxable income from say $200,000 down to $150,000.
So the investor avoids paying tax of 45 cents in the dollar on that $50,000. The tax saving is $22,500.
The investor has borrowed $50,000 to "save" himself $22,500 in taxes, but has still invested $27,500 of his own "new" money into the scheme.
The MIS company has earned $50,000 plus interest from the investor, with more to come on the back of ongoing management fees and rent.
Agricultural economist and certified valuer Sam Paton said investors could have poured their money into buying land, water and trees or vines that delivered immediate returns.
Mr Paton said an investor could buy a warm climate irrigated vineyard at $35,000 a hectare, yielding 15 tonnes a hectare and a net profit of $3000/ha.
Mr Paton said many investors had not thought about how they would get out of the ongoing financial commitment to MIS company.
"With any horticultural investment, you need an exit strategy," Mr Paton said. "In other words you need be able to sell the asset."
However, investors in horticultural MISs typically do not own the land or the water rights, making it difficult to sell.
