First loss recorded for Sth Canty Finance

Allan Hubbard

Shareholder and chairman Allan Hubbard is putting $40 million of new capital into South Canterbury Finance and will provide further support if required.

South Canterbury Finance has been the subject of speculation about its exposure to the dairy sector and to related-party loans.

"South Canterbury Finance is a sound, profitable business and I am committed to supporting South Canterbury Finance and its 45,000 investors who have loyally supported the group for 83 years," said Hubbard.

Hubbard a well-known businessman and philanthropist based in Timaru.

The company said it was also investigating other external sources of new equity, to continue to strengthen its position over the next six months.

South Canterbury Finance is making a $58m non-cash provision for non-performing investments and doubtful property assets in the year to June 30, 2009.

Non-performing and doubtful loans have been quarantined. An underwrite agreement with Hubbard will stand as security for any further specific loans that could become impaired over the current recession period.

South Canterbury Finance will report a loss before tax of $37m for the year to June 30, 2009. Prior to the writedown the profit before tax is expected to be $21m.

Hubbard said it was disappointing that the group would report its first bottom-line loss since 1934.

The company is predicting a net profit before tax between $18m and $22m in its 2010 year.

Chief executive Lachie McLeod said the strength of the group's shareholder, Hubbard, helped set South Canterbury Finance apart from other finance companies.

South Canterbury Finance had total assets at June 30 of $2.3 billion. It has $228m of cash and investments in listed bonds, which it considers to be liquid.

"Maintaining a high cash balance has been a prudent strategy in the current environment and provides comfort, along with the Crown guarantee, that all obligations to investors and perpetual preference shareholders will be met," said McLeod.

The company has at all times complied with with the Government's Deposit Guarantee Scheme and covenants within its trust deed.

The group said the tightening of lending by banks is having a positive benefit for it by presenting sound opportunities.

South Canterbury Finance provided funding to facilitate a settlement reached after the failed merger between PGG Wrightson and Silver Fern Farms.

South Canterbury Finance was founded in 1926 and provides finance to businesses, farmers and consumers.

In February South Canterbury raised $100m in a sale of bonds.

There have been media reports on a rise in the yield of the company's 2012 bond. The yield in the bonds, which carry a coupon of 10.43 per cent, reached 14.3 per cent in the secondary market.

- NZPA