South Canterbury Finance (SCF) chief executive Sandy Maier says talks with a “handful of parties” about investing equity into the beleaguered finance company by August 31 are continuing and look "commercially productive."
(Updated with Maier's statement to the NZX after 'please explain' letter on preference share price slump, plus correction on preference share traded volume and value).
Maier, who says SCF needs about NZ$180 million to bring it in line with its trust deed after trustee Trustees Executors granted a waiver until August 31, told interest.co.nz the aim was to keep SCF, whose owner Allan Hubbard is under government enforced statutory management, whole.
“The thrust has been to bring the whole business forward,” Maier said.
“So that would be SCF and all its subsidiaries rather than dismember it in any way. That’s what we are focused on.”
SCF has restructured itself into a "good bank" incorporating its performing loans, consumer loans and rural loans, a "bad bank" including sour property development loans and also an investment portfolio that includes Helicopters NZ, and SCF's holdings in Scales Corporation, South Island Dairy Farms, Dairy Holdings and other assets.
Discussions with each of a “handful” of parties were different, said Maier.
“But all the discussions are about the ongoing SCF in its entirety at the moment.”
Striking a deal to satisfy the trustee by Tuesday August 31 was the goal. "Quite vigorous” discussions were ongoing and looking “commercially productive.”
However, satisfying the trustee by August 31 could mean reaching a heads of agreement, a binding heads of agreement, a signed deal, or a completed deal.
"That’s going to vary a little because some of these things might involve the Overseas Investment Office and other things,” said Maier.
“So the process closing might stretch beyond that (August 31) but we want to substantially have a deal locked in and done by the 31st.”
SCF, which is being advised by Forsyth Barr, wasn’t planning to seek an extension to its waiver from the trustee.
SCF, which is covered by the initial Crown retail deposit guarantee scheme and which has been accepted into the extended scheme that takes over from the initial one on October 12 and runs until December 31, 2011, is also facing a wall of debenture maturities including about NZ$350 million in October alone.
A planned injection of NZ$37.5 million of equity into SCF by the George Kerr chaired Torchlight Fund No 1 LP could have brought SCF back in line with its trust deed. However, this failed to materialise after the Crown's consent, under SCF's Crown guarantee deeds in the New Zealand retail deposit guarantee scheme, wasn't obtained by May 31.
Meanwhile, Maier said he had no specific explanation as to why SCF’s preference shares lost nearly half their value in one day this week. The preference shares, listed on the sharemarket, fell 6.5 cents to a just 10c on Tuesday
with NZ$20.78 million worth, or 145,000 changing hands. A total of 298,000 had changed hands this week, at the time of writing, with a value of NZ$38,202 and a low of 9c touched.
SCF issued 120 million perpetual preference shares at NZ$1 each in December 2006. Of these, 65 million were new and 55 million replaced existing shares which were issued in 2004. More than half the shares were bought by North Island investors. The shares rank behind secured and unsecured creditors, but ahead of all other classes of shares. They had an initial dividend rate of 10%, which is reset annually at 230 basis points above the one year Treasury swap rate. A dividend is paid quarterly.
The perpetual preference shares are not covered by the Crown guarantee.
Maier said there had been some broker comment, but as far as he could tell, this didn’t amount to any particular knowledge. He speculated that investors might be waiting for an announcement on an equity injection. In the meantime, SCF continued to pay the preference share dividends and hadn’t signaled anything different.
Meanwhile, Maier said in a letter to the NZX responding to a 'Please explain' letter that the price fall may have been related to comment by a broker. He said the following:
South Canterbury Finance Limited is aware that a financial adviser has written to clients who hold perpetual preference shares expressing the view that the recapitalisation process currently being pursued by the company is unlikely to be successful and setting out the potential implications for perpetual preference shareholders if that is the case.
South Canterbury Finance Limited confirms that positive discussions are continuing with parties who remain interested in participating in the proposed recapitalisation of the Company.
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