SQM Research (SQM) has withdrawn its rating of the Provident Capital Monthly Income Fund due to concerns over the manager's financial position.
This follows two months on from SQM down-grading the fund in April from 3.75 stars to 3.25 stars with a watch for a rating change.
"This withdrawal of the rating and the report is a direct result of ongoing deterioration in the manager's financial position … and a lack of satisfactory communication from the manager on the current status of the responsible entity managing the monthly income fund," SQM stated.
"While SQM Research still has the opinion that the Provident Capital Monthly Income Fund is in an acceptable financial position, the ongoing decline in the financial health of its manager cannot be ignored," SQM stated.
April's downgrade followed Provident Capital's half-yearly report which was released 19 March 2012 and revealed a loss of $9.1 million for the six months ending December 2011, according to SQM.
This represented a significant change from $0.8 million profit for the six months to December 2010, and $1.2 million profit recorded in the 2011 financial year, SQM stated.
The loss was driven by impairment expenses, with the company writing off $14.9 million in the six months to December 2011, and SQM said the company was at an elevated risk of further impairment expenses if the property market deteriorated further.
SQM was also concerned by concentration within the loan book and a high proportion of arrears being older than 180 days.
SQM managing director Louis Christopher said the fund would be likely to survive in the event of a wind-up of the company, and that the best scenario for the fund would be for a new manager to take it over.