In a shock move likely to send a chill through the property finance sector, Treasury announced late on Monday it had withdrawn the government guarantee from Auckland-based property financier Viaduct Capital. Treasury said the government had withdrawn the guarantee after deciding Viaduct had used the guarantee inappropriately, without specifying details. (Update 2 includes news on Viaduct's website) Viaduct obtained its government guarantee after buying finance tiddler Priority Finance, a move some viewed as something of a backdoor approach to getting a government guarantee, which was only supposed to apply to existing property finance companies or new ones with investment grade credit ratings. The guarantee is still valid for deposits made up until the withdrawal of the guarantee on Monday, Treasury said. "The Crown has given notice to Viaduct Capital Limited today that it is withdrawing the Crown retail deposit guarantee from Viaduct, effective immediately upon receipt of the notice by Viaduct," Treasury said in a statement.
"The Crown is withdrawing the guarantee under clause 10.3(a) of the Guarantee Deed, on the basis that the Crown reasonably considers that the business or affairs of Viaduct are being, or are intended or likely to be, carried on in a manner which: may extend the effective benefit of the Crown Guarantee to persons who are not intended to receive that benefit; and is otherwise inconsistent with the intentions of the Crown in entering into the Guarantee," it said. "The Crown Guarantee is withdrawn in respect of all new deposits following delivery of the withdrawal notice to Viaduct today," Treasury said. "Viaduct has not failed and there has been no event of default under the guarantee triggering the claims process. No claims under the Crown guarantee would be considered for any depositors covered by the guarantee until a default event (as defined in the Guarantee Deed) has occurred. " Treasury said it would not comment further "at this stage." Meanwhile, Viaduct Capital said it would continue to operate its business. "Viaduct Capital is extremely surprised and disappointed at the actions of the Crown," it said in a statement issued late on Monday. "The company intends to pursue further with the Crown the reasons for its decision." Viaduct's website is currently offline.