SCF may rescue Strategic

BY CLAIRE MCENTEE

Embattled South Canterbury Finance could be a white knight for the 13,000 investors in Strategic Finance but a rapid rescue is unlikely, says sharebroker Chris Lee.

South Canterbury Finance has indicated it is considering an equity-for-debt swap, which would be the best-case scenario for Strategic investors owed $417 million by the failed property investment company, he says.

Strategic's trustee Perpetual Trust appointed a receiver for the company on Friday, after rejecting two options – including a debt-for-equity swap – suggested by its management. South Canterbury Finance, which has been on a capital-raising drive in an effort to recover from bad property development loans, reported a $154.9m half-year loss last month.

Mr Lee said PricewaterhouseCoopers partners John Fisk and Colin McCloy should sell Strategic to a company such as South Canterbury Finance, which could recover its value over time.

"If you just have a sale of the loan book conducted by people who aren't really in tune with the losses of the property market then it's inevitable that the losses will be much greater than everybody thought.

"It could be that half the money could be lost.

"Whereas if you ended up with shares in South Canterbury Finance you might say, `Oh well, it wasn't many years ago that these shares were worth a lot of money and if they can be restored to a lot of money then everybody might get something out of it'."

Mr Lee slammed the performance of Perpetual Trust, which had charged "enormous" fees but delivered no value to investors.

Some months, Perpetual had charged more than $100,000 for its services, he said.

"That's quite a lot of money for investors to be losing given they've had absolutely no value from it."

The Bank of Scotland – which was owed $75 million and was Strategic's largest creditor – had not challenged the appointment of a receiver, indicating it was happy to be rid of Perpetual and for PwC to take over, Mr Lee said. "Seventy-five million dollars is a hell of a lot of money."

They would be keen to recover as much of that as possible."

Strategic investor John Lacey, a retired accountant nicknamed "the jackal" who is owed $379,000, said he was not interested in a debt-for-equity swap because investors would not get a cent.

The receivers should appoint a liquidator and forensic accountant to investigate Strategic's transactions and sell the company's assets in a "timely manner" rather than in a firesale, he said.

"If people aren't repaying their loans, get someone in there who's an 800-pound gorilla to start kicking the little chimpanzees' derrieres and make them pay."

It was difficult to say what investors might receive back, but, based on advice from Mr Fisk that put the value of Strategic's loan book at $220m, he expected it would be between 42 and 45 cents in the dollar, he said.

Mr Lacey had campaigned for 18 months to have receivers appointed. He believed investors had been duped into voting for a five-year moratorium in December 2008, which was expected to see all their money, plus interest, repaid.

"People voted not knowing how bad the company was."

The Government needed to ensure there were laws and regulations in place to ensure investors would not get burnt by finance companies, he said.

Investor Margaret Morrin, who is in her early 70s and owed $12,500, said she voted for the moratorium because she was led to believe she would get her money back.

"As time has gone on that's got less likely.

"Now I'd just like to get anything back."

She was not in favour of a debt-for-equity swap. "You might get something back, but when?"

Another investor, who is 70, said the $20,000 plus interest she was owed was her retirement money and she had been disgusted to read that Strategic's chief executive, Kerry Finnigan, had been on a salary of $10,000 a week.

"Two weeks and two days of his pay will pay me back."

She did not know whether the move into receivership was a good one or not.

"How are we to know? They are not telling us everything."

Strategic's directors include Rugby Union chairman Jock Hobbs and former Countrywide Bank managing director David Wolfenden.

Mr Fisk is expected to issue a report to Strategic investors within six weeks, indicating how much money might be recovered.

South Canterbury Finance could not be reached for comment.

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