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