South Canterbury flogs property loans as more losses loom

BELEAGUERED SOUTH Canterbury Finance is trying to sell hundreds of millions of dollars of its property loans to overseas investors as it clears the decks to raise capital.

A sale would likely trigger further write-downs on the company's $1.6 billion loan book.

Reliable sources have told the Sunday Star-Times the loans have been offered to Australian investors as part of the company's strategy to exit the property lending market.

Topping the list of likely buyers are so-called vulture funds willing to take on higher-risk loans. These would include the likes of Fortress Credit Corp which has been involved with other troubled finance companies such as Hanover.

Although such a deal would release a large chunk of cash for the finance company, it could come at a cost.

The Star-Times understands the loans being offered for sale have been on South Canty's books with a fairly low level of provision for impairment. But potential buyers would likely take a hard-nosed view of the risks and demand a substantial discount to book value.

If South Canty accepted the offers, it would have to reveal the size of any resulting write-downs and that could raise further doubts in the minds of investors about the value of the company's other assets.

It is understood South Canty could be considering firm offers from potential buyers this week.

Asked about the loan sale process, newly appointed chief executive Sandy Maier was guarded in his response.

"Well, without confirming or denying that, we've looked at a number of options over long months, probably before I got here [Maier was appointed at the end of December] and that process continues, so there's nothing necessarily new and nothing committed to. It's a pretty standard thing to look at – are there some assets we should be disposing of at this time and what is the market for them? Generally speaking that's true, but there's nothing on the deck at this point."

The company and its auditors are currently finalising accounts for the six months to December 31, and on Wednesday Maier revealed they will show a bottom-line loss caused by further provisions for impaired loans. In October the company announced write-offs and provisioning of $122.9m. The latest half-year results are due for release early next month.

Maier was also cautious when asked whether a substantial write-down in the value of any loans which were sold would affect the level of impairments the company adopted in its accounts.

"The only thing that will really impact on that in the end will be a vigorous review on a loan by loan basis with our auditors," he said. "Eventually we will come to an agreement with them and they will be the numbers.

"It's not driven by any external benchmark. All of those things are in the air and I'm sure everyone takes account of them. But the final and definitive view will be our view and our auditors' view on them."

South Canty's hunger for cash is also showing up in the interest rates it is offering retail investors. Last week the company was advertising a "special offer" of 8% on term deposits which mature on October 11 this year – the last day of the current government-backed deposit guarantee scheme, in which South Canterbury participates.

By comparison, rival finance company UDC was offering 4.8% (on deposits under $100,000) for a seven-month term.

Last week Maier confirmed the company had appointed Forsyth Barr to "source funding to strengthen the balance sheet of South Canterbury Finance".

The company has previously flagged a possible public float of holding company Southbury Corporation, owner of South Canterbury Finance along with trading businesses Helicopters NZ and Scales Corporation.

Companies contemplating an NZX listing usually adopt a constitution consistent with NZX listing rules or giving precedence to the listing rules where they may be in conflict.

Southbury's new constitution adopted last month does neither, but Maier said that did not mean a public float was off the agenda.

- © Fairfax NZ News