Daily ShareChat: South Canterbury Finance

By Jenny Ruth

Monday 19th April 2010

The possible ramifications of a further rating downgrade by Standard & Poor's of South Canterbury Finance have reduced dramatically now the government has accepted the finance company into its extended Retail Deposit Guarantee Scheme (RDGS), says McDouall Stuart Securities.

"This will be a big relief for South Canterbury with it facing the famous $1.1 billion of maturing funds before October this year," the broker says.

"Had it not been able to offer an extended guarantee, an exodus of maturing monies would have been highly likely. Without substantial further volumes of new capital of the cash variety, such an exodus would likely have proved fatal."

The $22 million of secured convertible notes to George Kerr's Torchlight fund is just the latest step in an increasingly drawn out South Canterbury recapitalisation. "While very positive that South Canterbury has found more hard capital, as it stands, in our view South Canterbury's financial profile still falls considerably short of what is needed to give the market long-term confidence."

South Canterbury may sell its stakes in Helicopters NZ and Scales Corp to bring in more cash, the broker says.

The RDGS acceptance has had a dramatic impact on South Canterbury's listed bonds. The yield on its bonds maturing June 2011 halved from 18% to 9% immediately after the announcement compared with their 10.5% coupon.

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