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South Canterbury needed up to $300 mill to survive: Maier

South Canterbury Finance couldn't agree on the terms and conditions with three groups that were willing to stump up cash to keep the country's second-biggest finance company alive.

Tuesday, August 31st 2010, 1:11PM

by BusinessDesk

Chief executive Sandy Maier said the firm received bids in the range of between $100 million and $300 million that would've given it enough capital to survive, but hit sticking points on the detail of the proposals.

Though he wouldn't name the parties, he said the last three investors SCF was in talks with were South-East Asian/US trust, a consortium of local and offshore investors, and an international group with some investment history in New Zealand.  

"It requires some bravery today to invest that amount of money, especially in a finance company," Maier said on a phone conference from Christchurch.

Their inability to strike a deal led to the financier calling in receivers Kerryn Downey and William Black of McGrathNicol, and triggered a $1.6 billion payment under the government's retail deposit guarantee.

The collapse means the government faces a net liability in the ball-park of $600 million to cover SCF's 35,000 eligible investors, once the receiver has clawed back cash from asset sales. Some 60% of the government money will go into the South Island, with Timaru, Christchurch and Otago set to see most of it.

Maier said debt holders were today's winners because of the government protection, though preference shareholders, owed some $100 million, and shareholder Allan Hubbard will probably walk away with nothing.

Hubbard said he felt frustrated and hurt at being sidelined by his fellow directors and "straight-jacketed" by the government, and today's announcement hardened his resolve to clear his reputation and business practices.

"I have been prudent and diligent, to the very best of my ability, and have always been deeply respectful of the trust placed in me," Hubbard said in a statement. "It was a big day for the regulators and a sad day for investors."

SCF's so-called ‘good bank', which holds its main financing business, was "largely" restructured to separate it from the non-performing assets ring-fenced in the ‘bad bank', Maier said.

Maier "has been acting like a quasi receiver for some time - trying to sell assets and extract them from whatever loans they can do" and the receiver will continue to do that, said Fergus McDonald, fixed-income manager at Tyndall Investment Management.

The real problem was the bad bank and "the real big question-mark is what value could be ascribed to that," McDonald said. "There are probably not too many that want to take a punt on what the realisable values would be. Look at Allied Farmers - therein lies the problem for a new buyer - the truly unknown."

Finance Minister Bill English will talk to reporters this afternoon. Ratings agency Standard & Poor's is also preparing a statement.

In a statement, English said the government has also made a loan of $175 million to the trustee to enable the firm to repay prior ranking debts. At that point, the government will be "in a position of control" as first-ranked creditor. Ensuring speedy repayment for depositors "will ensure a minimum of disruption to the economy," he said.

While the government will incur the additional upfront cost, "it will ultimately reduce the cost to the taxpayer by about $100 million.

"They had really only had two options, either to call in the receivers or to put together some sort of restructuring," said Andrew Michl, senior fixed interest analyst at ING New Zealand. "One assumes that they were looking at different restructuring options and it just got a little bit too hard in the end, and receivership was the best option for the government and the Treasury."

The government may not face a "massive cost" if the good book is in decent shape, he said.

"Having said that if you look at other finance companies that have gone into receivership, all the risk has been on the downside rather than the upside," he said.

Peter Sikora, director financial institutions ratings at S&P, said it's now up to the receiver "manage the assets for the best interests of all stakeholders," though "it's too early to guess" the outcome. In the past, S&P have downgraded companies to a ‘D' rating when they've called in the receivers.

« South Canterbury bond speculators reap fat reward as finance firm failSCF process will take up to five years: English »

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