Editorial: South Canterbury Finance rescue

OPINION: Since the company known today as South Canterbury Finance (SCF) made its first loan in 1926, it has grown to become one the largest finance companies in New Zealand.

Over this period it has played an important role in providing capital to businesses and individuals, especially in the South Island. Like so many other finance companies, however, SCF has struggled during the recent recession, and made a loss of $154.9 million in the second half of last year. But unlike many of these other companies, it is controlled by a millionaire in Allan Hubbard, who has the confidence and the means to produce a rescue package for SCF.

The deal announced this week is consistent with the commitment given by Hubbard last year when he said he would be prepared to use his personal wealth, which the National Business Review "rich list" put at $550m last year, to back his company.

Under the deal, Southbury Corporation, another Hubbard company, sold its 100 per cent shareholding in Helicopters New Zealand and its 64 per cent holding in Scales Corporation to SCF. In return, SCF issued 317.7 million shares to Southbury and paid it $10m for a total purchase price of $165.2m.

Helicopters New Zealand is the nation's biggest helicopter services company, while Scales is one of the country's oldest and most diverse businesses, with apple growing and exporting, cold stores and pet food processing among its operations.

This deal should shore up SCF for the immediate future, especially as it provides the company with essential new equity, without which it could have struggled to remain afloat, and provision has been made for bad debts.

The deal could have come unstuck for technical reasons. Fortunately, Treasury-appointed experts approved it, on the grounds that it was done on a commercial basis, even though it was a related-party deal. And although it also breached SCF's trust deed, the company's trustee has granted a waiver from this until June 30.

It would have been highly unfortunate if a business transaction which offered hope for SCF and its 40,000 investors had been rejected for technical or bureaucratic reasons.

Those investors who have a total of $1.4 billion in SCF should now be able to face the future with greater assurance, while potential new investors should have greater confidence in the company's viability.

The deal is also good news for the businesses requiring capital in the future in the South Island, where the majority of the Timaru-based company's loans have been, and especially in Canterbury.

This deal will not be a complete answer to SCF's problems. As Sandy Maier, the chief executive brought in late last year to turn SCF around, has noted, more restructuring and some asset sales will be needed to further strengthen the company.

SCF has already signalled that it has moved away from property financing, which was the major single source of its losses and those of other finance companies, and return to its roots of financing small businesses, plant and equipment and consumer loans.

One of the most significant aspects of this week's deal is that Hubbard was prepared to sell two important assets to ensure that SCF investors had greater security. This is a stark contrast to the disregard shown by the jet-setting owners or executives of other troubled finance companies to the financial plight of their investors, many of whom stand to make vast losses.

The height of insensitivity occurred in 2008 when Hanover Finance co-owner Mark Hotchin chose to mark his 50th birthday with a lavish party for dozens of friends at an exclusive resort in Fiji. At the time he was asking the 17,000 investors in the company, whose assets were subsequently taken over by Allied Farmers, to give him and his co-owner several more years to repay the $500m-plus which was owed.

Hubbard is renowned not for high-living but for being a generous philanthropist and a businessman with integrity. And that integrity was visible this week in the rescue package for SCF and its 40,000 investors.

- © Fairfax NZ News