South Canterbury Finance chairman Allan Hubbard has written to investors espousing the importance and virtues of finance companies and assuring them the group's restructure will return it to a sound position, even after the Crown retail deposit guarantee scheme expires. Read Allan Hubbard's letter below.
Dear investor, As you may have seen, there has recently been a significant volume of media coverage about South Canterbury Finance. The Board and management of South Canterbury Finance wanted to update our customers and investors about recent company events. Our acceptance into the extended Crown deposit guarantee scheme is a significant boost to the company, its plans and its management. It allows us to continue offering securities with the benefit of a Crown guarantee until 31 December 2011. It also gives us time to demonstrate to investors and the market that the changes we are making will provide confidence in the long-term future of the business. South Canterbury Finance remains confident that the steps taken to recapitalise the company and restructure the business, together with our new strategies, will return South Canterbury Finance to a strong position. We believe these initiatives will provide benefits well beyond the term of the extended Crown guarantee scheme expiring on 31 December 2011. In the meantime, we are now just one of four finance companies in New Zealand that have been accepted into the extended guarantee scheme. In our view, the scheme recognises the importance of finance companies in the New Zealand economy, as they are more flexible than trading banks and vital to many small and medium sized businesses, the backbone of the New Zealand economy. If you are an eligible investor the scheme it guarantees your current investment in our business until 31 December, 2011. In recent months South Canterbury Finance has made substantial improvements to its governance and management with three new independent directors and new senior management appointments, including respected corporate restructuring specialist Sandy Maier as CEO. We have made significant progress towards returning the Company to a strong position but we acknowledge that more work is needed. Our progress includes recent injections of new equity capital to the company in order to counteract the impact the economic downturn has had on the value of our loan portfolio and other assets, especially in the property sector. The new equity comes from an additional 178.9 million from South Canterbury Finance’s parent company,Southbury Corporation Limited. Southbury has also announced its intention to inject a further $22 million of equity (and potentially up to $37.5 million) following a capital raising undertaken with the Torchlight Fund. In total the parent company will have injected more than $200 million of new equity capital into South Canterbury with $152.5 million through the sale of Helicopters New Zealand and Scales Corporation into the Company in exchanges for shares and a balance of cash. We are fortunate to have a well resourced parent company and the commitment of major shareholder Mr Allan Hubbard who has been prepared to ensure past losses are off set with new equity capital. Our restructuring plans also include a refocus on our core business, continuing our tradition of investing in grass roots New Zealand businesses. More than 50 percent of our core lending in New Zealand is outside the main centres. Our long-term aim is to retain our core business of about $900 million in receivables and continue that as South Canterbury Finance – making us one of the largest finance companies in New Zealand. We intend operating our non-core assets and businesses (about $600 million) such as Scales Corporation, Helicopter NZ and Dairy Holdings as a standalone subsidiary. We are “ring fencing” the property and other impaired loans with a net book value of about $500 million. These are the root cause of our problems and we intend to eventually either sell them off or gradually run the loans down. These loans were heavily provisioned in our latest accounts at 31 December, 2009 and our auditors Ernst and Young have closely reviewed our provisioning levels. We hold first mortgages for many of these property loans and as we identify and tidy them up we are receiving money. We won’t get it all back but we have reviewed every loan and made provisions or booked losses where appropriate. There is no doubt that a robust finance sector remains critical to serve those businesses not on the radar of trading banks. The number of finance companies in the New Zealand market has been reduced to a handful of key players, and there are significant new regulatory barriers for new entrants in the sector. We believe this leaves South Canterbury Finance well positioned among our competitors to take advantage of the demand for credit in the current market environment and in the years ahead. We have also been talking to a number of brokers and advisors around the country about the company and its plans. If you have more questions we suggest you talk to your investment advisor or give us a call at South Canterbury Finance. Thank you for your patience and ongoing interest in South Canterbury Finance. You’ll hear more from us soon. Yours sincerely Allan Hubbard