South Canterbury receivership, triggers $1.6 bill Crown payment

Tuesday 31st August 2010

South Canterbury Finance's receivership has triggered a $1.6 billion payment under the government guarantee.

Chief executive Sandy Maier said the appointment of receivers Kerryn Downey and William Black of McGrathNicol was inevitable once it became clear talks for new money wouldn’t be completed by the close of business today, when its trust deed waiver expired.

The collapse means the government faces a net liability in the ball-park of $600 million to cover SCF’s 35,000 eligible investors, once the receiver has clawed back cash from asset sales.

SCF’s so-called ‘good bank’, which holds its main financing business, was “largely” restructured to separate it from the non-performing assets ring-fenced in the ‘bad bank’, Maier said.

Maier “has been acting like a quasi receiver for some time – trying to sell assets and extract them from whatever loans they can do” and the receiver will continue to do that, said Fergus McDonald, fixed-income manager at Tyndall Investment Management.

The real problem was the bad bank and “the real big question-mark is what value could be ascribed to that,” McDonald said. “There are probably not too many that want to take a punt on what the realisable values would be. Look at Allied Farmers – therein lies the problem for a new buyer – the truly unknown.”

Maier is scheduled to front a media conference shortly and Finance Minister Bill English will talk to reporters this afternoon. Ratings agency Standard & Poor’s is also preparing a statement.

Maier said the “receivership is disappointing – and we were working very hard up to the last minute to avoid that outcome,” though “it was always going to be a big task.”

Prime Minister John Key told reporters yesterday the retail deposit guarantee covered investors in the finance company, though the government will also weigh up how best to protect the tax-payer’s interests, as well as the impact on the wider economy.

“They had really only had two options, either to call in the receivers or to put together some sort of restructuring,” said Andrew Michl, senior fixed interest analyst at ING New Zealand. “One assumes that they were looking at different restructuring options and it just got a little bit too hard in the end, and receivership was the best option for the government and the Treasury.”

The government may not face a “massive cost” if the good book is in decent shape, he said.

“Having said that if you look at other finance companies that have gone into receivership, all the risk has been on the downside rather than the upside,” he said.

Peter Sikora, director financial institutions ratings at S&P, said it’s now up to the receiver “manage the assets for the best interests of all stakeholders,” though “it’s too early to guess” the outcome. In the past, S&P have downgraded companies to a ‘D’ rating when they’ve called in the receivers.

Businesswire.co.nz

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