'Bad decisions' catch up with SCF

BY MARTA STEEMAN

The collapse of South Canterbury Finance will cost $372 for every New Zealander after the Government made good on the Crown guarantee.

The Government's $1.6 billion bailout of SCF investors is the biggest government underwrite since the collapse of the BNZ 20 years ago, commentators say.

The failed lender is now in the hands of receivers who were making little comment yesterday.

Receivers Kerryn Downey and William Black of McGrathNicol were appointed by the trustee, Trustee Executors, on behalf of the more than 35,000 debenture holders, after the SCF board asked for the company to be placed in receivership.

SCF chief executive Sandy Maier said negotiations had failed to extract an acceptable offer – in both price and terms – from three bidders. They were between $100m and $300m.

SCF had not defaulted on any payments but it could not secure the needed cash to comply with its trust deed. It had only about $7m of cash in the bank by yesterday. Putting a positive spin on the events, Mr Maier said that very soon there would be "a massive liquidity injection" as all the people who held debt securities in SCF would be repaid.

Mr Maier estimated the total payout to be about $2 billion with nearly 60 per cent of investors being in the South Island.

Trustee Executors would pay out those holding debt securities on SCF's debt securities register. The Government estimated yesterday that would take one to two months.

The Treasury's figures are a bit lower. The Treasury said it would be paying $1.6 billion to the trustee to pay back debt investors and that transaction was expected to have happened yesterday.

Later, the Government said there was another $175m loan being provided to receivers to buy out SCF debt investors who had "prior charges", essentially a first mortgage and top of the queue for repayment but not covered by the guarantee.

These investors include a group of wealthy New Zealand and Australian investors in the Torchlight fund who loaned SCF $100m. The fund is run by South Island businessman George Kerr, the cornerstone shareholder in Pyne Gould Corporation.

Mr Maier praised Allan Hubbard for doing everything he could to keep the company afloat while laying the blame for the failure at the feet of the company.

"South Canterbury's failure is a result of its own actions and activities and poor decisions historically. We could not overcome that baggage," Mr Maier said.

Mr Hubbard has injected just over $200m in assets and cash into SCF in the past 18 months.

The Government's decision to pay out all debt investors on the SCF debt register was "wonderful" for those investors, he said.

Those who have lost are the shareholders of SCF. Shareholders are the last to be paid in a company collapse if there is anything left over.

Mr Maier said yesterday that SCF had more liabilities than debt and there would be no equity left for shareholders.

The government guarantee "has undoubtedly kept South Canterbury alive", he said.

The biggest shareholders and who have lost the most are Allan and Jean Hubbard, who own about 75 per cent of Southbury Group which owns 80 per cent of SCF. The other 20 per cent of SCF is owned by several thousand preference shareholders. Those are equity investments and are not covered by the guarantee. "It's clearly a bad day for equity holders today," Mr Maier said. He said some traders speculating on the SCF bonds would have made money buying them off investors who had sold them well under their $1 face value. Those who held them would be repaid the $1 face value.

For the several thousand borrowers from SCF, a spokesman for the receivers said it was business as usual and nothing had changed. The loan arrangements would continue with existing terms.

The receivers may say more later this week after taking a preliminary look at the huge company with about $2 billion in assets.

The assets include its loans, with varying estimates of the value of those, and three large businesses which SCF owns.

Mr Maier said there was still the core of a good business with about $900m of loans sitting under a pile of "toxic" loans of about $600m. He had tried to sell a bundle of $300m loans and might have accepted $200m but got offers of $35m.

One of SCF's assets is Scales Corporation, 80 per cent owned by SCF. Scales owns apple orchards, coolstores and an ingredients pet food manufacturer. It is not in receivership.

Some commentators say the assets are likely to be sold. Other SCF assets include a one-third stake in big dairy farmer, Dairy Holdings, and 100 per cent of Helicopters New Zealand, a helicopters leasing business.

The Government is paying out more debt investors in SCF than previously covered by the guarantee which was largely limited to debenture holders and bond holders who were tax-paying here or New Zealand citizens. It has wiped the two latter criteria and included depositors whose debt investments were not guaranteed.

The Treasury said that would lead to a cleaner, more orderly receivership minimising the cost to taxpayers because there would not be investors left who had to be paid interest every month.

- © Fairfax NZ News