Marac, South Canterbury lose investment grade ratings at S&P

Thursday 13th August 2009

South Canterbury Finance Group and Pyne Gould Corp.’s Marac finance arm were stripped of their investment grade credit ratings by Standard & Poor’s.

Both South Island finance companies were cut to BB+, a junk rating, from BBB-, the lowest investment level. Marac’s outlook was lowered to ‘negative’ from ‘stable,’ suggesting the rating could be lowered further.

"Marac’s credit profile has weakened because of the greater-than-expected deterioration in the company's asset quality over recent months within the property development sector," Standard & Poor's credit analyst Derryl D'silva said in a statement.

The deterioration “has occurred in the context of a weak industry environment, where the prospects are for further growth in non-performing assets given the continued softening in the New Zealand economy,” he said.

The downgrade of Marac may raise questions over Pyne Gould’s plans to turn the finance company into a bank, which would be required to meet central bank prudential standards.

Last month the company said it would take some $160 million of impaired loans on development properties off its Marac unit’s books under restructuring of the group. The changes include buying Equity Partners Asset Management, an asset manager controlled by Pyne director George Kerr for $18 million.

South Canterbury’s rating cut comes after whose founder and main shareholder Allan Hubbard injected $40 million of funds into the business.

S&P last month said the firm’s decision to shift its holdings of liquid assets from cash to higher risk and high-yield investments has increased the risk profile of the company and weakened its liquidity.

Chief executive Lachie McLeod said South Canterbury will make an announcement in the next four weeks on bringing in new capital and the credit rating downgrade wouldn’t hamper those efforts. The company was able to meet scheduled interest payments and redemptions to debenture and bondholders, he said.

Businesswire.co.nz

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