Govt intends to sell off South Canterbury Finance

BY VERNON SMALL AND MICHELLE SUTTON
Last updated 16:07 01/09/2010
Allan Hubbard
NATASHA MARTIN/Timaru Herald
SCF president for life Allan Hubbard.

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South Canterbury Finance may be sold off to foreign investors, Prime Minister John Key said today.

In an impromptu press conference Mr Key said the government intended to sell SCF assets and confirmed the finance firm had been in discussions with potential buyers which were ongoing.

"There are certainly a number of parties that have approached the company before it went into receivership indicating they have an interest to buy either all of the assets or some of the assets, but whether that actually materialise into a deal that we could consider we are some way off making that decision at the moment - but there's no question there is interest in assets previously owned by SCF and that's because a lot of their assets are actually performing very well," he said.

But the government did not consider itself as being in the business of running a finance company.

Mr Key also warned that other finance companies may go under and the government would continue to look after investors by keeping the guarantee on investments in place.

Meanwhile, taxpayers face a wait of up to four years to find out how much they will get back from their $1.8 billion bailout of South Canterbury Finance's depositors.

The collapse of the company will cost $372 for every New Zealander.

After receivers were called in yesterday, the Government moved to take effective control of SCF's assets, offering to buy out all other creditors to become the sole beneficiary of the business built up by Timaru accountant Allan Hubbard.

SCF got itself into trouble by lending money to people who could not pay it back and on assets that had no value, Prime Minister John Key said. Many of the loans were now bonfire material.

In a dramatic day after last-minute efforts to find private "white knight" investors failed, SCF chief executive Sandy Maier admitted defeat and receivers were called in just after 9.30am.

Soon after, the Treasury confirmed qualifying depositors would be paid in full by the government guarantee, and in a surprise move said the cover would be extended to all depositors.

The payout includes $1.6b to more than 35,000 depositors, who will receive the money over the next couple of months, and a $175 million loan to the receivers to buy out other creditors.

That could see taxpayers eventually take a hit of $600m once the company's assets have been sold, which could take several years.

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However, Government sources hinted yesterday that a buyer willing to pick up a big slice of the company as a going concern could be in the wings.

Finance Minister Bill English, who worked through the night with officials on the package, said the receivers now owned the assets but he would be "a close adviser".

Mr English said the unusual move to extend the government guarantee to all depositors and stakeholders would cost more up front. But it would ultimately save about $100m through a "clean and orderly" receivership, lowering the estimated cost to taxpayers from $700m to $600m.

Mr Key said that, if the Government had not assumed sole rights, other creditors could have moved to appoint their own receivers, which would have taken control out of the Government's hands. "Without that we would be in the position of being the 800-pound gorilla who would have to take marching orders from a mouse."

The move would also minimise damage to the wider economy, because the Government was in no hurry to sell, so there would be no "fire sale" that could drive down the value of dairy farms and other assets.

Mr English conceded, however, that the other creditors could delay matters if they refused to accept the Government's offer.

Paying out all depositors immediately would cut the cost by avoiding continuing payments of interest at the high rates SCF offered – up to 8.5 per cent.

Mr Hubbard and his wife, Jean, and other shareholders in SCF seem certain to lose all the money they invested in the company.

Mr Key accepted yesterday that depositors in finance companies such as Hanover and Bridgecorp, which failed before Labour put the guarantee in place in 2008, might feel it was unfair that, as taxpayers, they were now helping to finance a payout for others.

National had backed the scheme and it had been necessary to stop a run on banks' and finance companies' funds and the collapse of the financial system.

Mr Key said the receivership was a "very distressing and sad day" for Mr Hubbard.

MARKET RESPONSE

The kiwi dollar lost about a cent in 24 hours after the Government bailed out South Canterbury Finance. By late yesterday it had fallen to US70.30c from US71.05c the day before.

Standard & Poor's said New Zealand's credit ratings were not immediately affected by the bailout, as the Government had already provided for the cost.

The sharemarket's NZX 50 index ended down 0.7 points at 3026.10, recovering from a 15-point fall during the day.

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