Finance company assurances restated

The Government has moved to assure investors in South Canterbury Finance that taxpayer cash will protect them if the company goes into receivership.

Finance Minister Bill English refused to comment yesterday on speculation that the Government was set to step in to save the company, as a last-ditch effort is made to form a rescue package to stave off New Zealand's biggest corporate collapse in decades.

But he reiterated assurances that a $900 million rescue package earmarked for investors affected by finance company failures would protect depositors should the company go under.

The deposit guarantee scheme, set up to protect deposits at the height of the global financial crisis, has so far paid out about $80m to depositors affected by finance company failures, with about $132 billion in deposits protected. But the Treasury has earmarked $900m to cover finance company losses – a figure that suggests it anticipated a failure on the scale of South Canterbury as early as March, when the Budget figures were prepared.

Speaking on TVNZ's Q+A yesterday, Mr English said the Cabinet would discuss South Canterbury Finance today, as speculation mounts that the Government is preparing to back a restructuring proposal. South Canterbury shareholders say the company needs a Government bailout to avoid receivership. Reports at the weekend suggested it could involve taxpayers being lumped with the finance company's bad debts, estimated at $500m.

But Mr English appeared cool on the bailout proposal yesterday and it would be a controversial move, given the cloud hanging over the company's major shareholder, Allan Hubbard, who is under investigation by the Serious Fraud Office over his other financial interests, and the uncertainty that any bailout would succeed.

Mr English made it clear that the Government's priority was to protect taxpayer interests. Though South Canterbury Finance was a major part of the South Island economy, that was "not really the primary consideration".

"The primary consideration is to fulfil the purpose of the deposit guarantee scheme for anyone who's invested in any finance company covered by it. So we've made provision for that and of course we're keen to make sure the taxpayers' interest is protected all the way through."

Trading in South Canterbury Finance preference shares and bonds was halted last week. Investors are owed about $1.7b.