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South Canterbury Finance makes NZ$68 mln loss; breaches covenants; calls in advisors for restructuring

Posted in News

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.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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1 Comments

"South Canterbury said it welcomed

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

This is the result of John Key travelling to Timaru to meet Alan Hubbard. If the Governement hadn't extended the guarantee then SCF would have been bankrupted. I bet Rob Muldoon would have loved this type of Government interference.

Alan Hubbard according to the NBR is worth $400 million, yet he needs bailing out by the NZ taxpayer. He's lucky that we have a Socialist Government.

"South Canterbury Finance announced a

"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."

If it's losing $31 million per month more than it is predicting, it may soon need the taxpayers to bail it out!

<Blockquote> A In even this

A
In even this simple theoretical world, crisis for a bank can arise from two directions. On the liabilities side, a bank can face a run on deposits which it has to meet from its liquid reserves. If the reserves are inadequate and outstanding loans cannot be called in fast enough, then the bank faces a liquidity shortfall and will "fail" to pay its depositors. It may then have to be wound up, or placed in receivership until the value of its assets can be realised by sale or through the maturing of loans.

or BB

On the assets side, problems arise if loans turn bad "“ which can happen if, for example, the borrowers who use the funds to purchase real assets such as land, houses or productive equipment are subsequently unable to pay the interest, and at the same time the resale value of the real assets drops so that the loan amounts cannot be recovered by foreclosure. In this case the bank's deposit liabilities remain the same but the falling value of assets has to be matched on the balance sheet by a fall in capital, which represents the shareholders' equity in the bank. Beyond the point where capital is driven down to zero, the bank is insolvent in the sense that it has no long run means of paying out its depositors, unless it can attract new capital with which to acquire more and better assets.

Me thinks BB

Keep an eye on these

Keep an eye on these guys they may pop up in some interesting places

http://www.fonterra.com/wps/wcm/connect/fonterracom/fonterra.com/Our+Bus...

Stuart Nattrass was elected to the Fonterra Board of Directors in June 2003. He is a member of the Audit, Finance and Risk Committee and the Fair Value Share Review Committee. View full profile...

Mr Nattrass was involved in international financial markets, principally foreign exchange risk management, for 16 years. He was initially employed at the National Bank in Wellington and he left the industry having held the position of Global Head of Foreign Exchange Risk for Westpac, based in Sydney.

He has been involved in farming all his life, and his interests now include ownership of a 420 hectare pastoral property near Geraldine. He also has a share in a 1,200 cow spray irrigated dairy farm near Ashburton. Mr Nattrass has a Bachelor of Agricultural Science with Honours from Lincoln University.

Will SCF be covered by

Will SCF be covered by the extended GG?? I think not . SCF is technically insolvent with the disclosed breach's. Also interesting Hubbard made the announcement today and not L.McLeod?

Chip says - "Will SCF

Chip says - "Will SCF be covered by the extended GG?? I think not"

JK it's Alan from Timaru, we need to talk again!

What about the CEO's own

What about the CEO's own $15M loan? Surely this has to now be questionable. Has it been written off ? How can McLeod stay as CEO losing this sort of money!

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