Taxpayers get 'maximum value'

It was always going to be a big task - Maier

The Crown is "first in line" to be repaid by  receivers for South Canterbury Finance - behind those protected by statute - Treasury announced today.

It today moved to reassure the public that taxpayers will get "the maximum value the receiver can recover from South Canterbury Finance" after confirming taxpayers were liable for $1.6 billion in investor deposits.

Acting Treasury Secretary Gabriel Makhlouf said the Crown was facilitating repayment of all of SCF's prior ranking debts along with all debt security holders in order to put itself first in line to be repaid by the receivers.

It appears New Zealand's second largest finance company was unable to find a buyer for the whole company.

The man appointed to try to turn around SCF said its receivership was disappointing and his team was working hard until the last minute to avoid that outcome.

Sandy Maier said he was aware of the enormous challenge that lay ahead when he accepted the job in December last year.

"It was always going to be a big task. I knew that, and the directors did too. But we thought that at the heart of the company there was an established business with a proud heritage that was worth saving and we have comibined our skills with those of the company’s dedicated staff in an endeavour to achieve that goal."

Asked how much he estimated the government could be paying out under the guarantee, South Canterbury chief executive Sandy Maier said it could reach $2 billion, "if we took in all of the secured debentures, all of the bonds and prior charges."

But he said there was substantial value in the  ongoing business and efforts to secure its future would continue.

"This business hasn't disappeared in a puff of smoke."

Mr Maier said at the heart of SCF there is a sound business supporting many successful small and medium sized enterprises.

“That is the core business of SCF and a real contributor to the economic well being of that sector of the economy.”

Financial market commentators have said in the last few days there were parties interested in the company's good loans which are estimated to be about $700 million of its $1.75 billion of loans.

SCF announced this morning that it has been unable to complete a recapitalisation and restructure.

As a result, the Company would have been unable to certify to its trustee, Trustees Executors, in accordance with the terms of its debenture trust deed that it was compliant with various financial covenants under the debenture trust deed for the financial year ended 30 June 2010.

The trustee acts on behalf of more than 35,000 debenture holders with $1.2 billion of debentures invested in the big lender.

Accordingly, SCF has requested Trustees Executors to appoint a receiver in respect of the whole of its undertaking and assets.

Kerryn Downey and William Black of McGrathNicol have been named as receivers. They will now take control and ownership of the group's assets.

"As trustee we have had South Canterbury Finance under heightened surveillance since 2008. As part of that, SCF was granted a trustee waiver in February to allow it time to recapitalise," said Yogesh Mody, southern regional manager for Trustee Executors.

"Unfortunately the company's directors have advised us that they have not been successful with respect to a recapitalisation and requested us to appoint a receiver,"

SCF is part of the government's retail deposit guarantee scheme.

Separately, the trustee has been working with the Government to get an early payment under the scheme if receivers were appointed.

Treasury has agreed that all debenture, deposit and bond holders covered under the company's trust deed arrangements will be paid what they're owed in principal and interest up to today, regardless of their eligibility under the guarantee scheme.

"Depositors and stockholders do not need to make a claim to The Treasury because the (SCF) Trustee has made a claim on their behalf. All depositors and stockholders on South Canterbury Finance's register will be repaid," said acting Secretary to the Treasury Gabriel Makhlouf.

 "The Trustee has been nominated as the eligible creditor under the terms of the Guarantee and the Crown today paid the Trustee in full. The Treasury and the Trustee are cooperating to promptly repay all registered holders of South Canterbury Finance debt securities."

Mr Makhlouf said when an up-to-date register of debt security holders is available the Government and the Trustee will arrange prompt payment to everyone on the register.

"We expect an orderly and prompt payment to South Canterbury Finance depositors and stockholders."
 
A spokesman for Finance Minister Bill English will hold a press conference at 1.00pm to give the Government's response.

"The retail deposit guarantee has been triggered, and the Government is taking steps to swiftly repay depositors, minimise costs to taxpayers and ensure the minimum disruption to the wider economy," a spokesman said.

HUBBARD'S FRUSTRATION

South Island millionaire Allan Hubbard is the major shareholder in SCF. He is under investigation by the Serious Fraud Office over other business interests, which are already under statutory management.

Mr Hubbard holds the view that if he had not been removed from the SCF board and himself placed in statutory management, he could have helped to save the business.

''It has been deeply frustrating and hurtful, over the last nine months, to have been sidelined by my fellow SCF directors, and subsequently straight-jacketed by the Government regulators, from working to save South Canterbury,'' he said a statement issued this morning.

A group of about 20 people gathered outside the SCF building on Sophia St in Timaru last night to show their support for the finance company and Mr Hubbard.

WIDER IMPACT

ANZ National Bank chief economist Cameron Bagrie said the way the receivership was handled would impact on economic confidence.

"I'm going to be looking for the impact on confidence. We have an economy that is growing, it's just not robust. Confidence can be very fickle.

"We've seen it trending down now for four months. These sort of developments, if handled well, could help restore a bit of confidence. If handled badly it will undermine confidence."

Mr Bagrie said fire sales of SCF assets would be a negative outcome.

"We are picking there will be a few more announcements.  We need sensible heads to prevail and to work through this in an orderly and sensible fashion."

He said SCF's tentacles spread far and wide through many sectors of the economy, and there could be some investors who are not covered by the Government's retail deposit guarantee scheme.

Important announcements still to be made included what will happen to SCF's "good" and "bad" loans, he said.

Federated Farmers president Don Nicolson has urged farmers affected by SCF's receivership to get credible and trusted financial advice on how to deal with it.

The farmer advocate group is talking to banks to explore how funding vacuums left by the receivership in farmers' seasonal finance needs could be filled.

Mr Nicolson reminded the financial infrastructure that farming was a dynamic, 24/7 industry with a workforce, crops and animals involved.

"This is not the time for losing the resolve to support this vital part of the economy."

NERVOUS TIME

Canterbury Employers Chamber of Commerce chief executive Peter Townsend said the receivership has provided some certainty for the region but he was "dismayed" such a major financial institution was such a predicament, and suggested there could be more turbulence ahead for the finance sector.

"There could be some further issues ahead with respect to the finance industry generally, we wait to see if there is a flow on effect. It is not a good look and the sooner we get some outcomes the better," he said.

"But I am not underestimating the difficulties ahead for receivers in working their way through a very, very complex issue."

National MP Jo Goodhew, whose Rangitata electorate covers Timaru, said the failure of SCF would be felt across the region.

"It remains an anxious time for the people in my community. I think that many will take heart knowing that they've been reassured about the government guarantee, and that will certainly assist a large number of people.

"I think now's a time for patience, just to see how the details of what will happen take shape, though it's hard to be patient when you're anxious.''

"It would be fair to say that it doesn't matter where I go in my community, everyone is talking about, and is concerned about, the situation.''

She would not comment on what action she thought the Government should take, saying that was a matter for Mr English.

- by Martin Kay, Marta Steeman, Andrea Fox, Tracy Watkins, Vernon Small and Alan Wood.

- © Fairfax NZ News