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Provincial and Perpetual fail to agree

Provincial Finance’s receivership may be short-lived although the signs aren’t promising.

Tuesday, June 6th 2006, 6:09AM
Since the receivership was announced on Friday there has been a meeting of interested parties to see if they can raise the necessary capital, and Provincial chairman and shareholder David Lyall has been in Australia over the weekend trying to raise sufficient equity to keep his company afloat.

The Friday meeting was chaired by South Canterbury Finance director Ed Sullivan and attended by SCF's Allan Hubbard, Strategic Finance chief executive Kerry Finnigan and financial planners.

Trustee for about 14,000 investors in about $325 million of Provincial’s debt securities Perpetual Trustee put the finance firm in receivership last week, an action which Lyall labelled premature and dismaying.

But Perpetual Trust chief executive Peter Baynes said that he gave Provincial’s principals ample time to organise a rescue.

"We ended up writing to he company and required them to remedy the breach. There have been a lot of discussions since (March). We worked with them," Baynes said. "That’s been over a seven week period. The reality is the discussions we’ve had over the last few weeks haven’t resulted in additional equity going in. There’s only so far you can go," he said.

Lyall said Perpetual had an offer on the table which involved Provincial’s shareholders injecting a further $16.5 million into the company and selling $25 million of the company’s property loans to South Canterbury Finance.

Baynes said that while South Canterbury chairman Allan Hubbard that offer wasn’t sufficient.

"The reality was the company was going to be inadequately capitalised." Provincial requires at least 10% of its assets to be equity, Baynes said.

"We needed to see that amount of money put in and fundamentally it didn’t meet that hurdle. We have set out very clearly to them what our requirements are," he said.

However, in a short interview over the weekend, Lyall denied that Perpetual had made its requirements plain.

"Two weeks before (receivership) a figure of $10 million would have been adequate," he said.

Asked how much Perpetual wants now, Lyall says "it’s not quite as simple as that."

Provincial provided for $85 million in bad and doubtful debts in draft accounts for the year ended March which show a $36 million net loss and its shareholders have already injected $27 million into the company in the last six months.

The company’s position has deteriorated markedly since March 31, 2005 when its accounts showed $227 million in total assets and shareholders equity of $34.6 million, just over 15% of total assets.

Asked whether there was a dispute with Perpetual over the value of the assets, Lyall said: "It could be."

On Friday, Lyall and fellow owner and chief executive John Edilson were in meetings with Hubbard and others in the industry to try to put together a rescue package.

Provincial’s problems stem from an ill-advised expansion into financing used car purchases but ended up with much higher than expected non-performing loans coupled with difficulties in selling repossessed vehicles into a depressed car market.

Baynes says it will become clear over the next week or so whether Provincial can emerge from receivership. "The last thing in the world you would do is put a company into receivership. I don’t see myself as a corporate undertaker."

Comment: Fascinating Provincial questions

The Provincial Finance receivership raises some fascinating questions along with challenges for financial advisers.

This is probably the first finance company failure where advisers have recommended the products of the failed company. (I assume no adviser had used National Finance 2000 - if they did well.....). [Read On]

« Chapman leaves SovereignSovereign takes regulation bull by the horns »

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