South Canterbury Finance bonds offered to raise $75m

South Canterbury Finance says it will have a war chest of $250 million to $300m with which to cherry pick the best customers for its loans if a bond issue goes to plan.

Linked to Timaru millionaire Allan Hubbard, the finance company plans to offer up to $75m of secured bonds and will take up to $25m extra oversubscriptions for the issue – meaning $100m could be raised.

The dairy boom and consolidation in the finance company sector were two reasons behind the decision to raise further funds for lending, chief executive Lachie McLeod said.

"We're (also) looking at two areas with oil exploration."

South Canterbury Finance would only lend to those with strong assets to back the loans, which would typically be $1m-$2m loans in its target market of business, rural and large plant lending.

Often the loans were being declined by other finance companies, following failures and a worldwide credit crunch, which had led to funds drying up.

The new bonds would rank alongside debenture funds as an investment, and were launched at an opportune time when the finance company sector had settled somewhat.

"We're being pretty bold, but we think we've got enough runs on the board to get it over the line, and hey, if we can get a bond issue away in this market, we can get it away in any market going forward," McLeod said.

Forsyth Barr has been appointed lead manager of the offer, with McLeod to travel with a road show to explain the offer, which is aimed at both the retail and institutional markets.

"If they want to diversify their portfolios, I would suggest to a company that's got a sound Standard & Poor's investment grade rating," he said.

Forsyth Barr is expected to underwrite up to $75m of the bonds, which will be first-ranking, five-year term, fixed-rate securities listed on the NZX.

"It's listed so (investors) can sell out when they want to ... not like a debenture, where they're locked in for five years," McLeod said.

The bonds are likely to offer an annual interest payment of about 10.25%.

McLeod said South Canterbury was receiving about one approach a week from other finance companies wanting to sell their loan books. However, "unfamiliar" loans often presented problems and the company was not interested unless "a very good opportunity" presented itself at the right price.

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