South Canterbury Finance faces receivership by Tuesday if govt doesn't back recapitalisation

South Canterbury Finance faces receivership by Tuesday if govt doesn't back recapitalisation

The government must decide in the next 72 hours whether South Canterbury Finance is Too Big to be allowed to fail.

By Bernard Hickey

South Canterbury Finance faces receivership within days if it cannot convince the government to back a recapitalisation proposal now sitting before Treasury, sources have told Interest.co.nz.

Cabinet is expected to consider the proposal on Monday and receivership is highly likely within the ensuing 48 hours without that further financial support from the taxpayer.

The Timaru-based finance company, the largest non-bank owned finance company in the country, has almost run out of cash and needs an urgent recapitalisation to avoid being placed in receivership by its trustee. It has pledged to find a new investor to meet the conditions of a waiver on its trust deed by August 31, which is this coming Tuesday.

South Canterbury's amended prospectus, which was suspended again on Friday, shows it had just NZ$10.6 million of cash on hand on Monday August 23. This would not be enough to keep it repaying maturing debentures and interest for more than a week.

Many investors have deserted South Canterbury in recent weeks despite the backing of a government guarantee as the bad news has rolled in. Standard and Poor's cut South Canterbury's rating to CC a week ago and a report by Statutory Manager Grant Thornton into the affairs of owner Allan Hubbard on Friday provided damning evidence of a financial empire in turmoil.

South Canterbury needs at least NZ$200 million of fresh equity capital and needs further financial backing from the government, given the government has guaranteed upwards of NZ$1.7 billion of debentures owed to more than 20,000 investors.

Sovereign rating downgrade?

Some have warned that an immediate payout by the government of such an amount in the event of receivership could force ratings agencies Standard and Poor's and Moody's to cut New Zealand's sovereign credit rating outlook.

But government sources have downplayed such a likelihood, given the government has already made a provision for losses of up to NZ$954 million from the Deposit Guarantee Scheme.

South Canterbury is understood to make up the bulk of that provision.

South Island rural economy

The government faces a wide economic fallout from a receivership.

Large swathes of the South Island rural economy depends on loans from South Canterbury Finance or are linked to companies fully or partly owned by South Canterbury Finance. These include fruit packaging and storage company Scales Corp, New Zealand's largest helicopter company HNZ and a third of New Zealand's biggest dairy farming company, Dairy Holdings. Dairy Holdings has 72 farms and supplies over 1% of Fonterra's total production.

The government guarantee is in place until the end of next year and South Canterbury Finance has planned to continue in business as New Zealand's largest independent finance company beyond the guarantee, lending to small businesses and farmers who currently are unable to get funding from banks.

Too big to fail

The government faces the choice of pumping in hundreds of millions of dollars immediately to support lending to the South Island rural economy and avoid firesales of dairy farms, or deciding to pull the plug now and manage the fallout from a de-leveraging of the rural sector that many believe is inevitable.

South Canterbury Chief Executive Sandy Maier was not available for comment on the situation. A spokesman for Finance Minister Bill English also declined comment.

   

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To get some positive news, why we not all watch “The Warriors” tonight ?

Oh dear, despite all this commonsense stuff, I just can't force myself to want SCF to go down the gurgler - the fallout for South Canterbury is going to be huge and very very messy.

Also, don't forget SCF owns Canterbury Finance, Otago Finance, Face Finance, and I forget all the rest.

Oh dear, oh dear, oh dear...

Come on Wa/olly, be a sport and chuck them all that money you made on the copper, that should be enough.

Come on people let's get real here, there is no way this Gov't is going to allow SCF go into receivership.  It's going to be bailed out, anyone want to take that bet with me?

John Key was tough enough to let the SFO have a go at AH, so he is tough enough to let SCF go into receivership if he thinks that is the best thing for the country.

He was tough enough to risk being called a coward by being out of the country when it happened.

"Best thing for the country"

 

When did a bloody politition ever care what was "best for the country"? 

 

Really!!

 

Wake up.  Polititions only care what is best for themselves!!!!

Careful WAS...Tolley might pop by to correct your spelling.

Dont forget the government is substantially in profit from the monies paid over from the entities in the scheme - someone remind me of how much, I recall its a reasonable sum.

Use that, plus what has been set aside and take the hit. Put the dog down, we do not want to go the way of the US and Europe and have these zombies stumbling on.

and then they wan't more and more and ........

 

Bit like a blackmailer with a blank checkbook.

The SCF business model is broken, so it needs to be broken up.  Management gets the boot and a receiver sells off the assets.  With 70 finance companies bust, investors had plenty of time to get out of risk and into safer assets.  They chased a higher premium for higher risk, and they lost.  Too bad.  I agree with those who say the decision is largely a political one.  

If National bails out SCF then it is one more indication that a snap election is in the cards.  JK will not want to piss off business donors.  It's a near run thing.  An announcement could come soon.  The pollsters are surely working overtime.

Mini stock crash in October.  Bigger stock crash in March.  Jobless rate doubles after Christmas season proves a bust.  Cost of borrowing starts to climb forcing large austerity measures.  Next two years are going to be a wipeout and nobody wants to have to justify cutbacks after bailouts.

Nothing else, but he’s age has beaten Alan Hubbard and will continuously - to the bitter end - sad. !

Maybe the Dunedin City Council could bail out SCF? It would be another gem in the city's portfolio, sitting beside the Forsyth Barr Rugby Stadium. Money is no problem in Dunedin. The ratepayers here have money to burn! Just on the quiet, I heard that the DCC has found Elvis alive and well. They have him lined up to play to sell out crowds every night at the new stadium. The harbour will be full of cruise ships full of Elvis fans. They will have to expand the Airport! Buy real estate in Dunedin if you want to make the big  money.

Mark you have been strangely silent today in light of the further revelations regarding Hubbard's activities. If I recall correctly you were a supporter of his - has the latest information undermined your position?

I agree with Mark.

You need some consistancy with your articles.  Otherwise interest.co.nz is no better than NZ herald's contradicting articles.

get real, the government accepted SCF into the scheme.  Investors invested on the strength of the GG.

they cant go changing the rules when the company collapses.

You sound like a horrible person!

Glad that you are just a nobody that has no say then.

Yep, 8% till Oct 10.

Wouldnt have done it without the GG.

Waiting now to see who will be repaying me (SCF or the taxpayer).

My interest payments have appeared each month in my bank acc to date.

I wonder if they will at the end of this month:)

 

Look past SCF...it is the state of the rural land bubble that has the banks in lots of trouble...expect Cabinet to throw your money into the pot...in an effort to stop the rot.

Don't forget there are thousands of baby-boomer farmers, relying on a capital gains tax-free sale of their massively overpriced farms to fund an opulent retirement. 

The Feds won't be exactly thrilled with their National Party chums if the govt lets SCF go down the tubes, dragging down the prices of rural land from their still stratospheric levels.

So.... at its heart definitely a political decision.

A good debate, cheers to all

I was attracted by 8% for 12 months with a full Government Guarantee.

My risk was the NZ govt.  The only risk I could see was having to wait for the Govt to pay out in the event of a failure.

I agree, the Govt should never had guaranteed finance companies.  But they did so why not make the most of it and get back some tax?

yeah right!

Be good when this annoymouse posting stops next month.

And you are a dawk.

Go back to your stupid little world loser.

I invested for as best return I could get with as little risk.

That is the way it is done.

No different than someone with trusts or property or shares.

If you want to remain a whining loser you carry on your way.

What a dreamer.

John Key is not a politician...he's a businessman who happens to be the CEO of NZ Inc.

they /he will not allow the South Islands dairy industry and part of the backbone of our nations export economy, to go into chaos...the reason why the SFO went in to Aorangi was to get a micro look at Hubbards private world so they can extrapolate outwards when they absorb all of SCF in a recapitalisation programme and transmogrify it all into a Govt. owned SOE...no big deal..sound business practice, no danger to govt. guarantee...it's exciting.

John Key and his team are onto it..forget politics..thats' all dead..it's business time!

.

 

Government won't help, Hubbard says

Friday 27th August 2010

Text too small?

The fate of South Canterbury Finance hangs in the balance this weekend, with just four days until a waiver on its trust deed expires on Tuesday.

According to Hubbard himself, the issue is whether or not the government will support a rescue package that creates a "bad bank" to take on SCF's dud assets, and the Treasury is advising it should not. 

"We thought they would take up a bad bank offer," Hubbard says. "They have to make a decision over the weekend."

The issue will reportedly go to the Cabinet on Monday, for consideration because SCF is covered by the government's bank deposit guarantee scheme, rather than because Hubbard and his wife, Jean, were placed under statutory management in June, a rare use of the draconian legal process that allows state control of private assets.

Hubbard said last night the Treasury is advising against the taxpayer taking up the liabilities of SCF's non-performing assets. Yet this is a crucial element of the bail-out proposal favoured by the statutory managers, Grant Thornton, Hubbard says.

The bid was "contingent on the government making a contribution toward a bad bank and they rejected that," Hubbard said.

"The people running the process favoured this first bid even though it was a lower number," said Hubbard. "I don't know the reason for that."

He declined to name either the favoured bidder or the bidding party he wants to bring to the table.

"That would be difficult."

Hubbard said that he still hoped to help recapitalise SCF through the unidentified foreign bidder, whom fervent Hubbard supporters say is offering $300 million.

Hubbard hoped, if a deal was in the wind, that Trustees Executors, the trustee, might give a few days further extension to a waiver on a breach of the trust deed that has been running since March, and reflects the distress in the Hubbard financial empire.

Hubbard's supporters also say the favoured bid is offering only $150 million, half the amount available from Hubbard.

"Yesterday the board of South Canterbury Finance received two investment offers, the first of which was significantly higher than the other offer,” Paul Carruthers, head of the 'Stand by Hubbard' campaign said in an email.

"The higher offer was declined by the board of South Canterbury Finance in favor of the significantly lower offer.

"The higher offer, which was significantly higher than the offer the board of South Canterbury Finance accepted, would have been very beneficial to South Canterbury Finance and its investors," Carruthers claimed.

The SCF empire is not part of the Hubbards' personal statutory management, although its fortunes are closely tied to Hubbard's. Corporate resuscitator Sandy Maier is chief executive of SCF now, and focused on getting a new capital partner into SCF ahead of next Tuesday's deadline.

SCF bonds and preference shares, listed on the NZDX, were placed on trading halt Friday pending an announcement about a new and unidentified investor.

Sources close to the process ruled out South Island investor George Kerr and his Torchlight group, who last month confirmed they had raised $150 million to take advantage of stressed company opportunities, and which already have substantial exposure to SCF through a series of capital support payments over the last year.

Hubbard himself scotched rumours running among his many supporters that Russian investors were involved. "Not Russian," he said, declining to identify the nationality of the proposed investor. The Russian suggestion is credible because of Hubbard's long association with supplying Russian Antarctic bases, using ice-breaker ships and the helicopter fleet in which Hubbard still has interests.

Officials in the office of Justice Minister Simon Power, who invoked the statutory management, directed enquiries to the office of Finance Minister Bill English as the Minister responsible for issues relating to the deposit guarantee scheme

Life can be so unfair.  Would you like a tissue?

Wonder if the Pakistanis are taking bets on whether SCF bowls a no-ball tomorrow