Finance firms downgraded by Standard & Poor's

South Canterbury Finance CEO Lachie McLeod and Chairman Allan Hubbard.

New Zealand's two largest locally owned finance companies, South Canterbury Finance and Marac, have both lost their investment grade Standard & Poor's credit ratings and Marac is at risk of a further downgrade.

Allan Hubbard-controlled South Canterbury, which last month had its investment grade BBB- rating placed on "credit watch negative" after announcing a $37 million full-year loss and $58 million of property loan provisions, yesterday "acknowledged the revised credit rating of BB+" imposed by S&P.

The company had hoped a formalised arrangement by which Hubbard would underwrite loan losses would enable it to keep its investment-grade rating.

Some commentators are concerned that a downgrade for the company could have a cascade effect, as investors who have provided it with US$100 million will now have the option of reviewing or withdrawing support.

South Canterbury chief executive Lachie McLeod said the downgrade would not affect plans to source new capital, or ability to make scheduled interest payments and redemptions to investors.

Meanwhile, Pyne Gould Corporation also announced that S&P had downgraded its subsidiary Marac - which has aspirations of becoming a registered bank - also by one notch from BBB- to BB+ with negative watch, which implies a 50:50 chance of a further downgrade within the next three months.

PGC chairman Sam Maling said the downgrade was "both unexpected and disappointing" but he maintained Marac was "one of the stronger finance companies in New Zealand, despite the company's recent asset-quality pressures".

Maling said Marac, like other finance firms and as highlighted by S&P, had been active in the hard-hit property development finance sector although that lending made up less than 20 per cent of its total book.

Last month, Marac disclosed $65 million in unaudited property loan impairments and it has now ceased lending in the sector.

PGC has announced plans for a capital raising to support its banking and asset management strategy. It will also establish a new asset management company, Perpetual Asset Management, which will in turn develop a "real estate credit fund". This vehicle will acquire Marac's impaired property development loans.

PGC which will be advised by First NZ Capital, expects to release details of its capital raising in mid-September soon after its full-year results on August 28.