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South Canterbury Finance Chairman Allan Hubbard has told the troubled finance company’s annual meeting in Timaru today that Chief Executive Lachie McLeod will leave the company to pursue farming interests and be replaced on an interim basis by Timaru chartered accountant Nigel Gormack. (Update 3 includes comments from McLeod).

South Canterbury said McLeod would finish on November 30 and be succeeded by Gormack (pictured left), who is a fellow director of Hubbard in Hubbard Churcher Trust Management Ltd, Companies Office records show. South Canterbury said it would look for a new permanent CEO to lead it next year when the group would be recapitalised, although it gave no new details of when that might be.

“The last 18 months have been particularly turbulent for the finance industry with pressures unleashed by the global financial crisis, new regulations and the difficult trading environment,” McLeod said in a statement released by South Canterbury.

“South Canterbury Finance is now on a more stable footing with a diversified portfolio of assets that will underpin its future. This is the right time to find and establish a new Chief Executive who can oversee the recapitalisation that will take place next year, position for the implementation of the new regulatory framework and meet the new challenges the industry will face.”

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South Canterbury Finance has registered a new prospectus, allowing it to start taking in money again from investors. But its prospectus discloses Allan Hubbard will step down as Chairman within 12 months and that will divest non core assets, including its major stake in New Zealand’s largest corporate dairy farmer Dairy Holdings and in South Island Farm Holdings, which has 20 dairy farms.

(Update 5 includes final prospectus, as initial document did not contain pages 44-74: ‘South Canterbury Finance and charging subsidiaries financial information’ and ‘auditor’s report’.)

The prospectus also details plans for South Canterbury to borrow up to NZ$75 million from an unidentified third party that would put a new prior ranking charge over its assets and this would be used to repay US lenders US$100 million over the next 6 months. It also disclosed South Canterbury had NZ$41.3 million of cash and NZ$47.6 million of realisable investments as at September 30.

More details and the full prospectus are below. We welcome comments and insights from readers on the prospectus below.

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South Canterbury Finance said the company now plans to register a new prospectus following the release of its audited accounts on or before September 30. This extends the time-frame of a week South Canterbury set at the end of August for registering a new prospectus and investment statement.

South Canterbury also said it was in discussions with its US bond holders and potential new investors and would have more information in ‘coming weeks.’ South Canterbury said on August 28 it would make an announcement on its planned capital raising within 3 weeks.

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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.

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Standard and Poor’s has cut Timaru-based South Canterbury Finance’s credit rating from an investment grade BBB- to a ‘junk’ rating of BB+, South Canterbury said. (Updates with comments from Standard and Poor’s statement about US lenders potentially withdrawing their loan and the potential for multiple further downgrades if owner Allan Hubbard does find extra capital)

“New Zealand has been in recession far longer than most other OECD countries and the current environment is challenging, particularly for property development,” said South Canterbury Chief Executive Lachie Mcleod. “This appears to have had some bearing on S&P’s thinking.”

South Canterbury said it was likely to announce an already signalled capital raising within the next four weeks.

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Ratings agency Standard and Poor’s has put South Canterbury Finance’s BBB- rating on CreditWatch negative, a move that could strip the Timaru based finance company of its coveted investment grade rating and unsettle many investors with NZ$1.7 billion of South Canterbury debentures. (Updated with comments from CEO Lachie McLeod.)

The negative creditwatch action followed South Canterbury Finance’s  announcement of a NZ$37 million loss for the just completed financial year to June 30 and its decision to look for fresh equity from a new shareholder. This followed a NZ$58 million provision for bad debts linked to the slumping property market.

A CreditWatch negative listing implied a “one-in-two chance” of a rating downgrade in the next three months, S&P said, adding a downgrade of more than one notch was possible.

Chief Executive Lachie Mcleod told interest.co.nz in an interview on Wednesday morning the ratings warning was a “probably precautionary move” and “not unexpected.”

“We’re still happy that we’re BBB-. If they’d had some major concerns they would have dropped us a notch immediately,” Mcleod said, adding there was now three months to work through the ratings agency’s concerns.

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