South Canterbury Finance announced a NZ$67.8 million net loss after tax in the year to June 30 2009, which was much deeper than its indication in July that it would make a net NZ$37 million loss for the financial year. South Canterbury also said it had called in advisers to assist it with a capital restructuring and had breached its covenants for bank loans it had not used.

"(A)s the economy transitions from recession, there will inevitably be additional stress in some sectors," Chairman Allan Hubbard said.

"To provide further for those events, the group has acted conservatively and increased the provision for non-performing assets in the financial year to 30 June 2009 and created a general collective provision," Hubbard said.

South Canterbury wrote off NZ$16.5 million in bad debts in the year to June 30, 2009, which was up from the NZ$10.4 million written off in the 2008 financial year. It also increased its impairment allowances to NZ$49.1 million from NZ$8.6 in million 2008. Impairment of shares and investments rose by NZ$2.7 million to NZ$5.8 million in 2009.

South Canterbury's interest income rose in the 2009 financial year, up by NZ$21 million from 2008 to NZ$220 million. Interest paid rose by NZ$45 million to NZ$180 million. The company also made a NZ$35 million loss on investments in 2009, from zero in 2008, and profit on the sale of shares and investments was down NZ$37 million to NZ$7.5 million in 2009.

The large loss in the 2009 year "caused the group to be in technical breach of the interest coverage covenants on its unused banking facilities," South Canterbury said, with Chairman Allan Hubbard saying the facilities had never been utilised over the last three years.

On August 13, South Canterbury received a credit rating downgrade from Standard and Poor's from BBB- to BB+.

"Talks are also underway with the five subscribers to the US$100 million private placement facility who are entitled to seek repayment within three months following the resetting of the group's credit rating by Standard & Poor's at BB+," South Canterbury said.

South Canterbury also said that its owner, Southbury Group, had appointed Forsyth Barr and Harmos Horton Lusk as advisers to assist in the capital restructuring of the group. A further announcement on this will be made in the next three weeks, South Canterbury said.

Directors Bob White and Stuart Nattrass also resigned from the board, with Nattrass to pursue other business interests and White taking the oppurtunity to retire before the restructuring of the Group. They will be replaced by independent directors, as mandated under new Reserve Bank regulations.

South Canterbury's cash on hand fell to NZ$123.3 million by June 30 from NZ$402.8 million a year earlier.

Investments held for resale rose to NZ$195.8 million from NZ$41.6 million a year ago. Shares held in associated companies rose to NZ$87.5 million from NZ$18.5 million a year ago.

South Canterbury said it welcomed the government's decision this week to extend the retail deposit guarantee until the end of 2011.

Bernard Hickey talks to Greg Boyed on TVNZ's News at 8 about Marac Finance and South Canterbury Finance. Both announced big losses on property loans and are now looking for hundreds of millions of fresh capital to regain their investment grade credit ratings. Their quest for fresh equity will be closely watched by the Reserve Bank and the Government as they try to stabilise the finance company sector and avoid a big bill before the end of the retail deposit guarantee scheme.