South Canterbury's cash drive pushing up all rates

South Canterbury Finance’s push to attract investors to help it get through its wave of maturing debentures is changing the market’s pricing dynamic, according to Standard & Poor’s.

Friday, June 4th 2010, 5:01AM

by Paul McBeth

S&P director of financial institutions ratings, Peter Sikora, says the Timaru-based financier, whose long-standing chairman Allan Hubbard stepped down from the board last week, is changing the market by forcing its rivals to try and match its rates.

"South Canterbury's got guaranteed deposits at 8%, and it has consequences for the wider sector," Sikora told a briefing in Wellington.

The competition for retail investors' cash has been the tightest it has ever been over the past year as banks vie with finance companies and savings institutions to bolster their funding after the global financial crisis sapped international credit lines, and government regulation forced them to source more money domestically.

Sikora said the most pressing issue for South Canterbury at the moment is its looming maturities in October, worth some $350 million, and that it needs to get through that before it can focus on its recapitalisation plan.

"The next event in front of South Canterbury is liquidity," he said. "There's a good chance of South Canterbury getting through those maturities, with reinvestment of June and July deposits at 60%, suggesting a gain in momentum."

S&P downgraded South Canterbury two notches to a B+ last week, saying the finance company was not addressing its liquidity gap at a fast enough pace, and Sikora said they would have to wait and see what kind of recapitalisation plan the lender has to help re-establish its business before it can consider upgrading the rating.

South Canterbury rolled over almost $133 million of debentures last month, and is currently in the process of renegotiating a lending facility with George Kerr's New Zealand Credit Fund. The company is also working to complete the $37.5 million equity injection from Kerr's Torchlight Fund No. 1 LP, via Southbury Corp. South Canterbury needs to get consent from its trustee and the Treasury, which chief executive Sandy Maier expects to come through next week.

Check out rates at www.depositrates.co.nz

Paul is a staff writer for Good Returns based in Wellington.

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