Archive | South Canterbury

Crown company takes over residual South Canterbury Finance assets

Published 5 June 2012

Crown Asset Management Ltd has acquired South Canterbury Finance Ltd’s remaining non-cash assets from the company’s receivers. They include the portfolio of remaining loans in the “bad bank” loan book, sundry equity investments and the remaining property investments.

Crown Asset Management is the company the Government set up to manage the recovery of the remaining assets of 6 finance companies placed in receivership while they had Crown guarantees.

Finance Minister Bill English announced the proposal last October, saying all the readily marketable assets had been sold and, by taking over the wind-down, the Government expected to halve the costs of managing the recovery of remaining assets, saving about $13 million over 2 years. The realisable value of the residual assets held by these companies was about $350 million.

Since that announcement, South Canterbury Finance’s receivers have paid the Government $116 million, and the other charging companies in the group $9 million, through to the end of the February. That reduced South Canterbury’s bill by $470 million from the original $1.58 billion owed under the retail deposit guarantee scheme.

Crown Asset Management chairman Gary Traveller said on Friday no cash would be paid to complete the acquisition, with settlement by way of the Crown releasing some of the debt that South Canterbury still owed.

He said the company would follow this transaction by starting negotiations with receivers of the other 5 finance companies in the scheme where the Government was the sole creditor – Allied Nationwide Finance Ltd, Vision Securities Ltd, Mascot Finance Ltd, Mutual Finance Ltd & Rockforte Finance Ltd.

Mr Traveller said Crown Asset Management would use premises in Christchurch previously occupied by South Canterbury and would continue to use staff who had been working for the receivers on loan recoveries. General manager Sharon Burleigh will run its day-to-day operations. The Crown company will be self-funding, with operating costs covered by the revenue it generates from realisation of assets and from repayments of loans it has acquired.

South Canterbury Finance was admitted to the Crown retail deposit guarantee scheme in November 2008. The extended scheme was closed on 31 December 2011. Kerryn Downey & William Black (McGrath Nicol & Partners (NZ) Ltd) were appointed receivers of the finance company headed by the late Allan Hubbard on 31 August 2010.

In their most recent report, on 3 May, the receivers said they’d realised $62.8 million in loans in the 6 months to the end of February, and $56.5 million from the sale of investment shares, mostly in Dairy Holdings Ltd, which were sold in February.

Helicopters (NZ) Ltd’s business has been sold, with distributions to South Canterbury and group company Hornchurch Ltd as shareholders. Helicopters (NZ) was wound up on 1 June as a solvent company.

Earlier stories:

28 October 2011: Government to take rest of finance company recoveries away from receivers

28 October 2011: Background on South Canterbury’s admission to guarantee scheme

28 October 2011: South Canterbury Finance receivers pay Government $395 million

1 September 2010: Receivers enter South Canterbury Finance after it fails to secure backer

20 June 2010:Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

9 June 2010: South Canterbury Finance announces roadshow

 

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Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

 

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South Canterbury Finance charges include some relating to Crown guarantee, FMA also looking at civil recovery

Published 8 December 2011

The Serious Fraud Office has laid 21 charges against 5 individuals following its 14-month investigation into South Canterbury Finance Ltd.

Financial Markets Authority chief executive Sean Hughes said yesterday the authority was also examining avenues to take civil proceedings to recover some of the money paid out to South Canterbury Finance investors under the Crown retail deposits guarantee scheme.

SFO chief executive Adam Feeley said the charges were filed in the Timaru District Court yesterday but he wouldn’t name those charged: “Until such time as the charges are first heard before the court and any issues regarding suppression have been fully dealt with, it would not be appropriate to make any comment on which individuals have been charged.”

Mr Feeley said the total estimated value of allegedly fraudulent transactions was about $1.7 billion, which included an estimated $1.58 billion from entering the guarantee scheme.

He said the charges alleged a variety of offences, including theft by a person in a special relationship, obtaining by deception, false statements by the promoter of a company and false accounting. The offences carry maximum penalties of 7-10 years’ jail.

“The collapse of South Canterbury Finance was one of the most significant of all the failed finance companies. The value of the fraud alleged to have been committed exceeds anything in the history of white-collar crime in New Zealand, and the time we have taken to complete this matter is a reflection of that scale.

“It is not appropriate at this point to comment on details of the allegations, but the investigation itself has been one of the most resource-intensive & time-consuming in recent history.”

Kerryn Downey & William Black (McGrath Nicol & Partners (NZ) Ltd) were appointed receivers of the finance company headed by the late Allan Hubbard on 31 August 2010.

Earlier stories:

28 October 2011: Background on South Canterbury’s admission to guarantee scheme

28 October 2011: South Canterbury Finance receivers pay Government $395 million

1 September 2010: Receivers enter South Canterbury Finance after it fails to secure backer

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

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Attribution: SFO release, story written by Bob Dey for the Bob Dey Property Report.

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South Canterbury Finance receivers pay Government $395 million

Published 28 October 2011

South Canterbury Finance Ltd’s receivers have repaid the Government $395 million this year, against $1.58 billion paid by the Government under its retail deposit guarantee scheme.

The money handed over by the Government last year went immediately to investors in South Canterbury debt securities, who were paid in full. With some quality assets still to be realised, the bill to taxpayers may scrape under $1 billion. South Canterbury’s ordinary & preference shareholders and unsecured creditors will get nothing back.

As South Canterbury receivers Kerryn Downey & William Black (McGrath Nicol & Partners (NZ) Ltd) issued their second 6-monthly report yesterday, Finance Minister Bill English announced the Government would take away from receivers the job of completing the recovery from 6 finance companies, including South Canterbury.

To give some perspective to that one receivership, the Government’s role under the guarantee scheme – and also how Mr English saw the impact of the company’s total collapse on New Zealand – I’ve gone back to a speech he made to Parliament in September 2010. Links to all 3 stories are at the foot of this one.

Mr Downey & Mr Black were appointed receivers of South Canterbury Finance & its 13 charging subsidiaries on 31 August 2010. Their second report covers the period 1 March-31 August 2011. It outlines the major sale transactions completed in that period:

Face Finance Ltd, sale of commercial loan book assets in excess of $100 million to GE CapitalConsumer, business & rural loan portfolios (“good bank”), sale of loan book portfolios with an aggregate book value of about $123 million to Tokyo investment bank Nomura Corp100% of Helicopters (NZ) Ltd sold to Canadian Helicopters Ltd for $160 million, and79.7% of Scales Corp Ltd sold to Direct Capital Investments Ltd for $44 million.

The receivers said they were making good progress on realisation strategies for the remaining unrealised loan book, investments & assets, including:

the balance of the loan book & property assets with an approximate book value of $470 millionSouth Canterbury’s 33.6% shareholding in Dairy Holdings Ltdsundry other equity investments and equity in certain charging group companies,loans to subsidiaries, related-party loans, including loans to Southbury Corp Ltd and to Southbury Group Ltdrun-off administration of Southbury Insurance Ltd, andinvestigations of pre-appointment transactions and potential litigation against various parties.

The receivers said South Canterbury’s assets had a book value of $1.9 billion before their appointment. In the 6 months to August they pulled in $463.2 million, including:

loan book realisations & operating lease income of $371.2 millionsale of assets & properties of $45.1 millionsale of investments of $39.9 million, andother receipts of $7 million.

Operating costs totalled $39.3 million, including loan book advances of $25 million.

The receivers also set out corporate recovery costs:

Asset realisation costs of $9.5 million, including investment bank fees of $6.4 million and vendor due diligence fees of $3.1 millionAdministrative costs of $7.7 million, including receivership fees of $3.8 million, legal fees of $3.6 million and other advisors’ fees of $0.3 million.

The receivers said they repaid the Government advance of $175 million for settling prior claims in full in February. In addition, they made $345 million of distributions to the Government for the 6-month period and a further $50 million on 7 October.

The receivers gave no indication of the value or timing of further payments.

Related & earlier stories:

South Canterbury Finance receivers pay Government $395 million

Government to take rest of finance company recoveries away from receivers

Background on South Canterbury’s admission to guarantee scheme

1 September 2010: Receivers enter South Canterbury Finance after it fails to secure backer

6 August 2010: South Canterbury blames broker’s letter for sharp fall in preference share price

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

9 June 2010: South Canterbury Finance announces roadshow

7 June 2010: Kerr injects increased debt into South Canterbury instead of equity into Southbury

31 May 2010: Hubbard now president for life, Sullivan exits

21 May 2010: Torchlight injects more equity into South Canterbury Finance parent

20 May 2010: South Canterbury claws back $202 million of outstanding loans

7 May 2010: S&P confirms South Canterbury Finance rating at BB (creditwatch negative)

1 April 2010: Southbury to use Torchlight injection to prop up South Canterbury

3 March 2010: Hubbard injection helps South Canterbury after half-year loss

13 January 2010: Hubbard puts South Canterbury Finance & 2 other businesses under new holding company 

24 December 2009: S&P upgrades South Canterbury Finance rating

30 October 2009: Kerr comes to South Canterbury Finance’s rescue

21 October 2009: South Canterbury Finance registers prospectus

16 October 2009: South Canterbury to pay back US noteholders, has new facility & prospectus on way

23 September 2009: Hubbard says negative credit watch a result of audit timing at South Canterbury

21 May 2008: South Canterbury Finance lifts bond issue to $125 million

28 February 2008: South Canterbury Finance builds war chest on top of record earnings

19 December 2007: South Canterbury Finance pulls in $125 million in bond issue

2 December 2007: South Canterbury Finance accepts $25 million oversubscription

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Attribution: Receivers’ report, story written by Bob Dey for the Bob Dey Property Report.

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Background on South Canterbury’s admission to guarantee scheme

Published 28 October 2011

South Canterbury Finance was admitted to the Crown retail deposit guarantee scheme on 19 November 2008 and numerous comments have been made about the sense of allowing that to happen.

To give some perspective, I’ve gone back to a ministerial statement Finance Minister Bill English made to Parliament on 8 September 2010:

“At the time (it was admitted to the scheme) South Canterbury Finance appeared sound.  In June 2008, Standard & Poor’s had affirmed a stable BBB- credit rating and commented that ‘asset quality is sound, underpinned by a modest risk appetite, proactive risk management and sound underwriting standards’.

“However, this was not necessarily the case. In the 4½ years to December 2008, South Canterbury Finance’s assets had almost doubled from $1.1 billion to $2.16 billion.

“As 2009 evolved, it became clear that much of this additional lending was not high quality. The balance sheet expanded slightly under the guarantee, peaking at $2.35 billion in June 2009. It is clear, however, that the great majority of problem lending occurred prior to entering the guarantee.

“In mid-2009, Treasury appointed KordaMentha as advisors to report on the company’s financial position. The June 2009 Crown accounts included a provision of $831 million for the deposit guarantee scheme. The majority of this related to South Canterbury Finance.

“Assessing the potential risk was complicated by related-party lending, generally poor credit & accounting processes, and more recently the departure of most of the senior management. Despite this deteriorating position, South Canterbury Finance remained in compliance with the deed of guarantee, and as such there was no ability or cause for the Crown to withdraw their guarantee. 

“If, for whatever reason, South Canterbury Finance’s guarantee had been withdrawn, existing depositors would have still been covered for the full term and the Crown’s exposure would have remained.

“In September 2009, the Government moved, with unanimous support in the House, to extend the retail deposit guarantee until the end of 2011, though on significantly more restrictive terms than previously. On 1 April 2010, South Canterbury Finance was approved for entry to the extended scheme when it started in October 2010. Their admission into the extended guarantee did not materially change the Government’s risk in the event of default.

“In the event, because South Canterbury Finance entered receivership before October, the extended guarantee never applied. Payments to depositors will be made under the terms of the original scheme. During the period of the guarantee, Treasury and their advisors were in close contact with the firm. Once it became apparent the firm was in difficulty, there were proposals either to acquire parts of the firm or to recapitalise.

“I instructed Treasury officials to work co-operatively with the firm on these options. However, all effectively amounted to a bailout by the Crown, with extra cost & risk to taxpayers. At no stage would Treasury have recommended accepting any of these proposals.

“At the request of its directors, South Canterbury Finance was placed in receivership on 31 August.  The ultimate cause was insolvency, not lack of liquidity. The Government then moved promptly to ensure that depositors could be repaid swiftly. As well as repaying $1.6 billion of remaining depositors, the Government extended a loan facility of $175 million to the receivers to ensure prompt repayment of prior chargeholders, and extended the guarantee to a small number of previously ineligible depositors.

“These decisions were taken for commercial reasons. They avoided the need to pay ongoing interest that otherwise would have accrued over many months or years as investors submitted claims, and also the risk that receivership might be controlled by prior chargeholders, to the potential disadvantage of the Crown. Treasury estimates that the net saving to the Crown is about $100 million as a result.

“The Government’s recent moves ensure that the receivership will be conducted in an orderly fashion that minimises disruption to businesses either financed or owned by South Canterbury Finance. The receivers this week (in 2010) called for expressions of interest from possible buyers of South Canterbury Finance’s assets.

“While the Crown has had to make good its guarantees to depositors, it will recover some of the proceeds out of receivership. Once the receivership is finished, this will largely complete the cycle that began in October 2008. When the fees collected from the wholesale & retail guarantee schemes are included, the net cost is likely to be between $300-$400 million.

“While this cost to taxpayers is considerable, this expenditure did help prevent the potential collapse of the financial system. In the light of ongoing bank bailouts around the world, this net cost is the premium our economy has paid to avoid potential catastrophic losses to the taxpayer over the last 18 months.”

Related stories:

South Canterbury Finance receivers pay Government $395 million

Government to take rest of finance company recoveries away from receivers

Background on South Canterbury’s admission to guarantee scheme

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Attribution: Ministerial statement, story written by Bob Dey for the Bob Dey Property Report.

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Hubbard statutory managers unclear who owns $60 million of Aorangi assets

Published 4 July 2011

The statutory managers of Hubbard company Aorangi Securities Ltd said on Friday uncertainty around ownership of $60 million of assets made the timing of returns to investors unclear.

In their seventh report to investors in Aorangi and Hubbard Management Funds, statutory managers Richard Simpson, Trevor Thornton & Carson McGlinn (Grant Thornton Ltd) said they’d made good progress in realising assets and continued to finalise issues and stabilise the complex farming interests associated with Mr & Mrs Hubbard. They said they’d restructured & significantly improved the financial reporting & governance of a number of associated farming interests. However, in the short term, the complexity of third-party loans & investments recorded by Aorangi Securities to businesses related to Mr Hubbard meant the schedule & amount to be paid to investors was unclear. The statutory managers expect to distribute 8c:$1 to Aorangi investors this month, but said this depended on the repayment of a refinancing loan. Hubbard Management Funds held its value over the last quarter, while progress was made moving investments into more blue-chip entities.

The Serious Fraud Office laid 50 charges under the Crimes Act against Mr Hubbard on 20 June over the affairs of Aorangi, Hubbard Management Funds and Mr Hubbard & his wife Jean. The statutory managers said in their Aorangi report that, after engagement with various interested & affected stakeholders, key decisions had resulted in some stabilisation: “These restructures enable the farming interests to be packaged in a marketable form to maximise realisable value. We have sold interests in a number of farms at or exceeding valuation, for a total consideration in excess of $14 million. “We would expect additional realisations in the next 3 months to exceed $20 million. Presuming the beneficial ownership of the interests can be determined, some or all of those realisations should be available for distribution to Aorangi investors.” The distribution of 8c:$1 is less than expected and reflected the difficulty the statutory managers continued to have in collecting loans and sorting out ownership issues relating to various farms: “Investors will have a long wait for repayment on investments because assets purported to have been transferred to Aorangi may still be owned by Mr & Mrs Hubbard.” The statutory managers are challenging an arrangement that Mr Hubbard purported to implement with South Canterbury Finance Ltd, which broadly involved Mr Hubbard introducing assets indirectly for the benefit of South Canterbury Finance in return for $110 million of bad debts in South Canterbury Finance. The return from these bad-debt loans since the statutory management started in June 2010 was about $500,000. “The security given to South Canterbury Finance was over the Hubbards’ ownership interests in 21 farms. It has been agreed with South Canterbury Finance that the courts be asked to provide directions as to who is the beneficial owner of these assets. “A further complication on the ownership is the position of the other owners of the 21 farms, who were not aware of the action taken by Mr & Mrs Hubbard in unilaterally transferring their interests for the benefit of South Canterbury Finance. This was done without reference to the other parties, even though (in many instances) there are agreed arrangements in place, that is partnership agreements & company constitutions, that require shareholder approval before shares are transferred.” The Hubbard Management Funds value stood at $49.3 million at 31 May, after adjustments for assets subject to third-party claims. The statutory managers said some investors had asked if they’d produce individual investor statements as Mr Hubbard had done: “As noted in previous reports, it appears the statements issued to investors have contained errors with, potentially, a $31 million shortfall of assets when compared with all investor statements as at 31 March 2010. “We will not be in a position to advise each investor of their tax position regarding the fund until we have directions from the court as to the portion of Hubbard Management Funds’ assets each investor is entitled to. “Despite the significant issues we have found, and the quality of the records, we still expect to file the papers with the court by the end of September. The court will then schedule a hearing, which is unlikely to be before 2012.” The cost of the total administration to the end of May 2011 for Aorangi, Te Tua Trust & Hubbard Management Funds was $4.9 million (gst inclusive), made up of $2.87 million (Grant Thornton), $1.15 million (legal), $276,303 (other disbursements) & $609,477 (gst). The statutory managers will file next report at the end of September.

Earlier stories:

21 June 2011: SFO lays 50 fraud charges against Hubbard

9 March 2011: Hubbard funds’ assets well short of investor statements, Aorangi report also out this week

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

 

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Attribution: Statutory managers’ release, story written by Bob Dey for the Bob Dey Property Report.

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Hubbard funds’ assets well short of investor statements, Aorangi report also out this week

Published 9 March 2011

The statutory managers of Hubbard Management Funds have told investors in their sixth report, out yesterday, they’re minding $31 million less in assets than the total on investors’ statements a year ago.

For that reason, they said, they can’t distribute either the full amount of cash or the full volume of assets to individual investors. As a result of a court order, the statutory managers are also able to manage the funds, not just sell down & distribute – they injected $1 million back into the Mercer Group and have invested in private equity & venture capital funds because of contractual obligations, to maintain the funds’ positions.

The Government placed Timaru financier Allan Hubbard & his wife Jean personally into statutory management on 20 June 2010, along with one of their companies & 7 trusts. The company the funds operate through, Hubbard Churcher Trust Management Ltd, and the holder of the funds’ bank account, Forresters Nominee Co Ltd, were placed in statutory management on 20 September.

The statutory managers are Richard Simpson & Trevor Thornton of Grant Thornton Ltd (plus Carson McGlinn, appointed in September). They said that, at the request of shareholders, they’d separated their reports for Hubbard Management Funds & Aorangi Securities Ltd. The Aorangi report will come out later this week.

The statutory managers said the fund had incurred a $7.2 million loss in the 4 months to 31 January but the overall valuation, $48.75 million, was slightly ahead of the value when they were appointed last June.

They said a court hearing & submission processes meant they wouldn’t be able to make any distribution to investors until next year.

While the NZX50 rose by 5.03% and the ASX 200 by 3.73% over the reporting period, the statutory managers said the Hubbard funds lost money mainly because of investments in Pike River Coal Ltd, NZ Oil & Gas Ltd, the reconstruction of the Mercer Group and the share price volatility around Olympus Pacific Ltd. However, they said they saved investors $675,000 by reducing the holdings in NZ Oil & Gas and Pike River Coal (mainly to meet other investment requirements) shortly before the Pike River disaster. They also reduced the Olympus stake.

Since 31 January, the statutory managers have invested $1 million back into Mercer Group, “following much research & many discussions with Mercer directors & executives and Mr Hubbard. The result of this investment is that the holding of the Hubbard funds in Mercer Group is about 17.75%.”

The statutory managers said they’d set up systems so they could value the funds’ assets on a monthly basis.

The funds’ valuation has been reduced by third-party claims made against their assets: “Some of the shares subject to claim have been pledged as security to financiers for borrowings made by Mr Hubbard or parties related to him. Other shares are held for the benefit of Hubbard Management Funds but, on the face of it, the companies appearing to own the shares are in receivership. We expect to ‘rescue’ shares worth over $2 million in the next month or so.”

On the bright side, the statutory managers said the private equity & venture capital funds in which the Hubbard funds had an interest were long-term investments “and it appears likely they will also deliver returns that are well above average.”

On the question of costs, the statutory managers said they’d billed the funds $680,507, including gst, for the 4-month period to January, but commented: “It is important to note that in the past Mr Hubbard would have charged a management fee during the last quarter of the year of between 1-1.5% of the funds recorded on the statements of investors from the previous 31 March. This charge would have been between $800,000-1.25 million. The statutory managers will not charge a separate management fee.”

The statutory managers said they’d issue their next report on the Hubbard funds by the end of June.

Earlier stories:

22 September 2010: 2 more Hubbard companies placed in statutory management

1 September 2010: Receivers enter South Canterbury Finance after it fails to secure backer

27 August 2010: Statutory managers confirm shortfall at one Hubbard fund, expect loss at Aorangi

14 July 2010: Statutory managers freeze investments in another Hubbard entity

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

 

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Attribution: Statutory managers’ report & release, story written by Bob Dey for the Bob Dey Property Report.

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2 more Hubbard companies placed in statutory management

Published 22 September 2010

The Government has out 2 more Hubbard companies into statutory management – Hubbard Churcher Trust Management Ltd & Forresters Nominee Co Ltd, which hold assets connected with Hubbard Management Funds.

Commerce Minister Simon Power said yesterday the decision to put the companies into statutory management followed a recommendation by the Securities Commission, which made its recommendation after receiving a report from the statutory managers of Aorangi Securities Ltd.

The move is a result of ongoing investigations by statutory managers into Aorangi Securities & 7 charitable trusts, which were put into statutory management along with Mr & Mrs Hubbard on 20 June. 2 further trusts related to Aorangi Securities – Temple Bar Family Trust & Barns Charitable Trust – were put into statutory management on 13 September.

Hubbard Churcher Trust Management is owned & operated by the partners of HC Partners in Timaru, an accountancy firm formerly known as Hubbard Churcher. Hubbard Churcher Trust Management holds most of the investment assets of Hubbard Management Funds, which invests funds on behalf of 300 investors. It’s also a corporate trustee for some clients of HC Partners.

Forresters Nominee Co has Mr Hubbard as its sole current director & shareholder.

Mr Power said: "The Securities Commission recommended this action to preserve the interests of the beneficiaries of trusts administered by the companies, preserve the interests of investors in Hubbard Management Funds in the public interest, and allow the affairs of the companies to be dealt with in a more orderly or expeditious way.

"The Securities Commission was satisfied that those interests could not be adequately protected any other way.”

The same statutory managers appointed to Aorangi, the Hubbards & the 9 trusts have been appointed over the 2 new companies. They are Trevor Thornton, Richard Simpson & Graeme McGlinn (Grant Thornton Ltd).

Mr Hubbard’s best-known business, South Canterbury Finance Ltd, isn’t in statutory management but had receivers appointed to it on 31 August.

 

Earlier stories:

1 September 2010: Receivers enter South Canterbury Finance after it fails to secure backer

27 August 2010: Statutory managers confirm shortfall at one Hubbard fund, expect loss at Aorangi

23 August 2010: South Canterbury ratings downgraded, Maier projects good news in week

6 August 2010: South Canterbury blames broker’s letter for sharp fall in preference share price

14 July 2010: Statutory managers freeze investments in another Hubbard entity

22 June 2010: S&P downgrades South Canterbury, Maier defends

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

7 June 2010: Kerr injects increased debt into South Canterbury instead of equity into Southbury

20 May 2010: South Canterbury claws back $202 million of outstanding loans

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Attribution: Ministerial release, story written by Bob Dey for the Bob Dey Property Report.

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Receivers enter South Canterbury Finance after it fails to secure backer

Published 1 September 2010

South Canterbury Finance Ltd went into receivership yesterday after failing to raise the $1-300 million of equity that would have kept it going.

 

The Government immediately paid the trustee for South Canterbury & its charging group of subsidiaries, Trustees Executors Ltd, $1.6 billion, which the trustee will disperse to depositors, bond & debentureholders under the terms of the Crown retail deposit guarantee scheme.

 

Holders of shares (chiefly South Canterbury founder Allan Hubbard & his wife, Jean) & investors in the company’s $100 million of perpetual preference shares won’t get a payout under the scheme and are unlikely to get a return through the selldown of assets.

 

Mr Hubbard injected $152 million of assets into South Canterbury in February, as equity which he’s now unlikely to see returned. The assets themselves are in the hands of receivers Kerryn Downey & William Black (McGrath Nicol & Partners (NZ) Ltd).

 

The Hubbards’ personal assets, a private company & 8 trusts were placed in the hands of statutory managers Trevor Thornton & Richard Simpson (Grant Thornton) in June-July.

 

On top of the $1.6 billion for the investor payout, the Government has lent the receivers $175 million to repay all of South Canterbury’s prior finance debts, which include $100 million of what is effectively a first mortgage from George Kerr’s Torchlight fund.

 

Under the guidance of chief executive Sandy Maier, who took control of South Canterbury on 23 December, the company’s loan portfolio was split into a $700 million “bad bank” and a $900 million “good bank”. Including assets injected by Mr Hubbard, the total book was about $2 billion.

 

The Government will be repaid from sale of those assets by the receivers.

 

Mr Maier said the Government would make an immediate gain through a better funding cost – he was funding at 8% but the Government’s cost of funds was 3-4%: “The taxpayer saves $100 million/year.”

 

Mr Maier’s job finished when the receivers were appointed. He’d been working through Monday night trying to secure a deal with one of 3 groups to recapitalise South Canterbury, each with different offers. “Was there one of the 3 we liked more?” he repeated a question at a morning media teleconference: “Yeah, but it didn’t ring all the bells either.”

 

While he was battling to save the business, Mr Maier said speculators were having a wonderful time gambling on its fate through the company’s bonds.  Longer-dated bonds had been trading at up to 40% as speculators took a punt that the Government wouldn’t fund the guarantee – there was an unguaranteed period in 2011-12 – or that South Canterbury would survive into that unguaranteed period, then fall over.

 

The immediate issue, though, was a 31 August deadline. South Canterbury needed to provide a certificate to its trustee by yesterday, it was also the reporting day for the company’s accounts to June and it was down to minimal cash. It had been in this predicament before, each time managing to find enough equity: “This time, we could not.”

 

Earlier stories:

27 August 2010: Statutory managers confirm shortfall at one Hubbard fund, expect loss at Aorangi

23 August 2010: South Canterbury ratings downgraded, Maier projects good news in week

6 August 2010: South Canterbury blames broker’s letter for sharp fall in preference share price

14 July 2010: Statutory managers freeze investments in another Hubbard entity

22 June 2010:   S&P downgrades South Canterbury, Maier defends

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Statutory managers confirm shortfall at one Hubbard fund, expect loss at Aorangi

Published 27 August 2010

The statutory managers of Timaru financier Allan Hubbard, his wife & related entities confirmed a shortfall in Hubbard Management Funds today and warned that investors in Aorangi Securities Ltd might suffer a loss.

 

Statutory managers Trevor Thornton & Richard Simpson (Grant Thornton) issued a progress report today and said they’d issue their next report at the end of September.

 

The Government placed Mr Hubbard & his wife Margaret personally into statutory management in June, along with Aorangi Securities & 7 trusts, and added another entity, Hubbard Management Funds, to the list in July. Mr Hubbard’s best-known business, South Canterbury Finance Ltd, isn’t in statutory management.

 

Commerce Minister Simon Power said Mr & Mrs Hubbard were so closely involved in the affairs of Aorangi Securities & the trusts that the statutory managers couldn’t operate unless the couple were personally included in the order. The charitable trusts are Benmore, Morgan, Otipua, Oxford, Regent, Te Tua & Wai-iti Charitable Trusts.

 

The statutory managers said today the 300 investors in Hubbard Management Funds had been told the reported value of their investments at 31 March 2010 was overstated by at least 25% and that Aorangi investors might suffer a loss.

 

Mr Simpson said: “As statutory managers, we are aware that this news will be a shock & a disappointment to the many people who have invested in these businesses operated by Mr Hubbard.

 

“We are mindful that some people depended on a flow of funds from Hubbard Management Funds & Aorangi for their day-to-day living and that the freezing of the funds under statutory management has created hardship for them. For those people, an emergency fund has been established.

 

“In the case of Aorangi, an underlying problem we are dealing with is that Mr Hubbard has allowed Aorangi to accept deposits of about $96 million from investors on call, but he invested those funds in investments or loans which are nearly all long-term in nature.

 

“Much of the money is invested in minority interests in about 25 farms, as well as in a charitable trust administered by Mr Hubbard and a number of other commercial entities, some of which are of poor quality. These investments do not generate sufficient income to pay the interest due to Aorangi’s investors.

 

“Many of the farming businesses invested in are highly geared, the dairy farm sales cycle is currently at a low and, in the case of the charitable trust, many of the loans are interest-free and some will not be recoverable.

 

“While we hope to be able to make a small repayment to the Aorangi investors in October, Aorangi has only a small amount of available cash and it will take a long time before the investments can be realised."

On Hubbard Management Funds, Mr Simpson said: “Hubbard Management Funds has deposits of about $82 million and is invested in public company shares, venture capital funds & unlisted companies. The total value of Hubbard Management Funds is at least 25% less than reported by Mr Hubbard to investors in the 31 March statements this year. The reason for this is that some of those statements included investments & cash balances which did not exist. There are also likely to have been further losses in value in the fund since 31 March due to the weakness in the markets over that period.

 

“The investment profile is not consistent with what would be appropriate for a typical investor in Hubbard Management Funds. There is a lack of blue-chip investments and the composition of the fund’s portfolio generally means the fund is high-risk in nature.

 

“We have many issues to still work through and we will have a further progress report to the investors at the end of September.”

 

Earlier stories:

23 August 2010: South Canterbury ratings downgraded, Maier projects good news in week

14 July 2010: Statutory managers freeze investments in another Hubbard entity

20 June 2010: Hubbards & 8 entities under statutory management, SFO investigating, South Canterbury Finance excluded

 

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South Canterbury ratings downgraded, Maier projects good news in week

Published 23 August 2010

South Canterbury Finance Ltd acknowledged on Friday that Standard & Poor’s had revised the company’s long-term credit rating to CC, maintained the short-term rating at C and the outlook for both the long- & short-term credit rating as negative. Chief executive Sandy Maier said the finance company was making good progress on recapitalising the business, with a target of making an announcement on Tuesday 31 August: “This will be of far more significance for all stakeholders and we would anticipate that Standard & Poor’s will want to undertake a review of the company’s credit rating soon after. “There is confidence amongst all parties involved in the recapitalisation process that a favourable outcome can be achieved and that, following the completion of that process, South Canterbury Finance can continue to operate as an active supporter of small & medium business enterprises. “In the meantime, South Canterbury Finance is comfortable with its liquidity position and continues to meet all obligations as they fall due.” South Canterbury Finance will continue to be covered by the Crown’s extended retail deposit guarantee scheme through to 31 December 2011.

 

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Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

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