Onterran calls in voluntary administrators after Couran Cove debacle

It was supposed to be a cash cow that would bring Onterran (ASX: OTR) a $95 million boost through development, but Couran Cove Island Resort on Stradbroke Island quickly turned into a white elephant for the Brisbane-based property company whose shares have been suspended from trading since February, 2017. 

Citing a lack of capital to make the asset truly successful, on Friday the group announced the $17 million sale of Couran Cove's holding company Island Resorts to a subsidiary of Sydney boutique property group EDG Capital.

Onterran will make an application to the ASX to determine whether shareholder approval is needed for the deal to go ahead.

"The Board of Onterran determined that in current circumstances this capital could not be raised on a timely or commercial basis or in a manner that would enhance the return for Onterran classes of shareholder," the company said in the announcement.

"With a new owner in place who plans to invest significantly in the Couran Cove Island Resort, Onterran will be free to pursue other opportunities available to it, whilst still gaining indirect benefit from investment in the resort from the investment of the new resort owner."

The sale means Onterran has given up the rights to develop or manage the property or run its associated business, but the company still owns 80 apartments on the site. 

What exactly will be done with these properties and the transaction windfall remains to be seen, after the company announced today that voluntary administrators were called in on Friday.

David Clout and Trish Talty have been called in as the voluntary administrators, and the company intends to enter a restructuring process through offering and seeking the approval of a Deed of Company Arrangement. A meeting of creditors is anticipated to take place on 20 March.

Aged care provider Eureka Group (ASX: EGH) is another investor that has encountered problems at Couran Cove due to negative cash flow, with difficulties prompting a decision last year to offload its assets at the resort. The Gold Coast-based entity had originally planned to acquire the same management rights Onterran has just disposed of, but that idea was scrapped in 2017.

Eureka's $3.6 million in proceeds from its sale of its Couran Cove Resort cabin and apartments were expected to go towards a partial repayment of a $2.26 million loan.

Onterran claims to have needed around $7 million to $10 million in capital to harness the potential of the resort, where in mid-2016 it had initially slated substantial development plans for 220 houses.

At the time the board forecast the project would generate more than $95 million in revenue over the ensuing four years with executive chairman Lachlan McIntosh highlighting "significant upside potential".

"The development potential of Couran Cove is vast and we expect it to be challenging but also very rewarding," McIntosh said at the time, noting a strategy it was believed would help Onterran become less susceptible to pricing fluctuation.

Just three months before Onterran went into a trading halt which morphed into a suspension that has been extended numerous times over the past two years, the company announced it was accelerating development at Couran Cove with plans for glamping cabins and an eco precinct. 

The company used the upcoming Commonwealth Games as an indicator of property market strength to underpin the expedited development project, to be backed by a $6 million share repurchase plan. 

The offer was due to close on 21 December, 2016, but shareholders were given an extra day to acquire extra stock. The extension was to little avail though, as only $2.2 million was raised.

Nonetheless, Onterran assured the market this would be sufficient - along with an "accelerated apartment sale program" - to make developments proceed. 

But red flags appeared again in mid-January 2017, when Onterran cancelled close to 91,000 redeemable convertible preference shares that were issued in error. Less than a month later on 10 February a trading halt was announced.

Four days later that trading halt became a voluntary suspension pending an announcement which wasn't to come until 28 April - Onterran's subsidiary construction company Bloomer was calling in voluntary administrators.

It wasn't until August of that year that the details of a Deed of Company Arrangement (DOCA) for Bloomer were released, involving payments of more than $1.2 million required from Onterran. Since then there have been departures of a few key executives, and very few signs until last week of how the company would get out of its bind. 

Business News Australia