SCF in rescue deal talks

BY MARTA STEEMAN

South Canterbury Finance is negotiating into the night to nail down a rescue deal to save itself from collapse.

SCF chief executive Sandy Maier said three parties considered themselves in the race.

SCF needs a large cash injection to keep it afloat. Any deal requires the consent of Treasury because SCF has the Crown deposit guarantee.

The trustee for more than 35,000 debenture holders in SCF has given New Zealand's second biggest finance company until August 31 to find the cash.

Maier said there were a lot of structural and economic issues to be worked on.

"It's impossible to say we will get there. Over the course of the evening we should know. Tomorrow is our target.''

While the media was focused on who were the bidders and whether the Government would be involved in a bailout, "What I'm focused on is the survival of the company.''

Some of the negotiating parties were combinations of groups and were not wholly overseas or domestic investors.

"There's some vigorous parties in here that want the business and it's a question of whether we can stitch it all up.''

GOVERNMENT PLAN IN PLACE - KEY

Prime Minister John Key said ministers had a carefully constructed plan to deal with the crisis, but he wouldn't say what it was and gave no indication the Government was going to bail out one of New Zealand's biggest non-bank institutions.

SCF owes 20,000 investors about $1.7 billion and needs a new backer or a cash injection from the Government to avoid receivership.

Speaking at a post cabinet press conference, Mr Key would not outline what steps the Government were taking. 

He could not comment in detail on South Canterbury Finance because he didn't want to ''prejudice'' any deal.

''This is a very complex situation for everyone involved... I think it is important that everyone understands the government is carefully balancing the interests of both depositors and taxpayers.''

He said there was "some confusion" about the retail guarantee scheme. There has been speculation that the overall cost to the taxpayer if South Canterbury collapsed would be $900 million. However, Mr Key explained the overall provision of the scheme was $900m.

"There is an overall provision in the Crown Accounts of around about $900m for all companies in the scheme that we expect to make a call on the guarantee.

"We remain confident that figure will be adequate and it's already included in our financial forecast. In making decisions now the government will continue to have the interests of taxpayers in mind. In fact we owe it to taxpayers not to pay any more of their money than is necessary."

Finance Minister Bill English was due to leave for Hong Kong and Singapore today. He briefed Cabinet this afternoon and advised he was going to postpone the trip, Mr Key said.

''On balance he believed he should remain in the country in case he is needed to deal with any aspects arising out of South Canterbury Finance, and I support him in that decision.''

Earlier today South Canterbury Finance warned "there can be no certainty" that recapitalisation and restructuring proposals it has been pursuing will be successfully implemented.

In an announcement to the NZX today, as speculation about SCF's future reaches fever pitch, SCF said it was still in discussions with interested parties to try to put together a recapitalisation and restructuring solution acceptable to all stakeholders.

SCF said it expected to be in a position to make an announcement to the market tomorrow.

SCF owes 20,000 investors about $1.7 billion, and is believed to be running out of cash to pay investors and meet statutory requirements.

It needs a new backer or a cash injection from the Government to avoid receivership.

Mr English was to address the NZ Chamber of Commerce in Hong Kong and Singapore and the Better Hong Kong Foundation. He was due to return on September 5th.

 

SFO CONTINUES INVESTIGATIONS

Meanwhile the Serious Fraud Office will continue its investigation of Allan Hubbard's companies, it said today, after a preliminary report found further issues to consider.

SFO chief executive Adam Feeley said its own inquires and the stautotory manager's report into Hubbard's companies Aorangi Securities and Hubbard Managed Funds highlighted showed further inquiries were necessary.

"This is a major investigation into a very complex range of issues. It would be foolish to think that some investor interviews and a cursory examination of the documentation would do justice to the issues that have been raised," he said.

"We will not compromise the integrity of our investigations for the sake of a quick result." 

He said the SFO would be probing the overlapping affairs of Aorangi and Hubbard Managed Funds, as well as other related entities.

While the initial inquiries and preliminary report had significantly progressed the investigation, he said, there were still several interviews and considerable financial analysis to be done before a further report would be completed.

ONGOING DISCUSSIONS

Chief executive Sandy Maier said SCF was still in discussions with interested parties following its management team’s spending nine months to resuscitate a company that needs new investment ahead of tomorrow’s deadline for a rescue plan.

"We have three parties looking at the investment," Maier said, while reiterating in his NZX statement that there can be no certainty that the proposals it has been pursuing will be successfully implemented.

The political and media attention that SCF’s recapitalisation had gained, owing largely to the activities of supporters of Allan Hubbard, the 82-year-old president for life of the company, were "very unhelpful," Maier said.

"There’s quite a lot of noise and emotion and there are people who feel they can pressure the government and pressure us," he said. "That’s very unhelpful for the government and to ourselves."

Among those rumoured to be looking to invest include Sydney-based businessman Duncan Saville, with a $175 million bid for SCF’s so-called "good bank", which has between $700 million and $1 billion of good loans.

Earlier, Maier played down speculation the beleaguered company was looking for a taxpayer funded rescue plan.

"It's a very long stretch to say ... that represents some kind of capital contribution or bail out or whatever, or that we're negotiating with Treasury for cash contributions or so on," Mr Maier told Radio New Zealand.

"At present there isn't anything like that going on. The only live discussion at the moment is with private sector parties, and taking cognisance of the (retail deposit) guarantee."

SCF president for life, and chairman until March, Alan Hubbard said there was a deal on the table to help the firm but it would need government money too.

One of Mr Hubbard's other companies, Hubbard Management Funds, seven charitable trusts, Mr Hubbard himself and his wife Jean have been put under statutory management.

About 300 investors in Hubbard Management Funds have been told the company overstated its value by at least 25 percent on March 31, reporting non-existent investments and cash balances.

Mr Hubbard disputes the figures.

POLITICAL PRESSURE 

Greens co-leader Russel Norman said the Government should take a stake in South Canterbury Finance to ensure that South Island farmland the company owned does not fall into foreign ownership.

"South Canterbury Finance owns a significant chunk of prime South Island farmland. John Key's Government needs to move quickly to ensure this does not all fall into the hands of foreign owners," Dr Norman said.

He said the Government's reluctance to tighten the rules on foreign land sales, due in part to the requirements of free-trade deals, made taking an equity stake in the company the best option.

"The best option would see the Government take an equity stake in the finance company retaining control of the fate of the farmland and enabling an orderly restructuring of the company. This is much like how the financial crisis has been managed abroad, where governments took equity stakes in failing banks.

"This is a situation of picking the best of a number of very bad alternatives. The worst option would be to support a foreign owner taking control of South Canterbury Finance," said Dr Norman.

"Given the strategic importance of the assets involved, the Government needs to ensure from the outset that prime South Island farmland will remain in New Zealand ownership."

- with Andrea Vance, NZPA and BusinessDesk.

- © Fairfax NZ News