Tuesday 16th February 2010
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South Canterbury Finance's future depends on its acceptance into the government's deposit guarantee scheme as it approaches $1.1 billion of debt roll-overs between now and when the scheme shifts to new, more onerous conditions in October.
Maier, the head of embattled lender South Canterbury Finance says the government scheme has created the “unintended consequence” of making itself a necessity in giving investors piece of mind to roll-over their deposits as they come due – something that’s become a headache for the Timaru-based finance company.
South Canterbury Finance, which is owned by octogenarian millionaire Allan Hubbard, flagged a billion-dollar black hole in its latest investment statement, with some $491.2 million of debt to be repaid by the end of June, and a further $650.5 million coming due before the expiry of the existing guarantee in October. As at February 10, the company had cash on deposit of $79 million and realisable assets of $12 million, with a loan book of about $1.7 billion as at June 30.
“We’re in a temporary hump, but there’s a sense that if we can get into the scheme, we can open up a wider range of investments and move people to roll-over” their deposits, Maier said. “We’ve certainly handled individual roll-over days as big as these ones.”
Last month, South Canterbury Finance said it would apply for the extension to the Crown guarantee, which takes the scheme out to the end of 2011 with harsher requirements and more punitive charges, after it flagged more impaired assets in its first-half earnings that would lead to a loss for the period.
The Treasury requires companies that are already covered by the scheme, such as South Canterbury Finance, not to have had their guarantee removed, not to have been subject to a default event, and to hold a credit rating of at least BB. The finance company’s BB+ rating would see it pay a premium of 1.2% for coverage.
The finance company won’t be able to fall back on a banking facility after it was cancelled last year, and it has fully drawn down a $75 million facility with George Kerr’s New Zealand Credit Fund, which was used to repay American investors. Maier said there were no immediate plans to re-engage with the banks, though they’re reviewing all kinds of options to recapitalise the company.
Still, it did manage to attract new deposits after it released a prospectus in October, boosting its deposits to $34.9 million at December 31, from $29.2 million in June, and Maier’s confident they will be able to meet their obligations with renewal rates of between 50% and 60% from existing investors.
The Treasury kept its provisions for the retail deposit guarantee scheme at $899 million in the five months through November. About $873 million has been provided for future costs to the government. Some 73 institutions are covered by the scheme, with deposits totalling $133.1 billion, of which about $5.5 billion is in the non-bank sector.
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