Finance giant on the brink of collapse

Photo / Sarah Ivey

Prominent businessman Allan Hubbard's finance company is teetering on the brink of receivership and is understood to be in last-minute talks with the Government and overseas investors to avoid New Zealand's largest corporate collapse in decades.

A government guarantee covering South Canterbury Finance makes taxpayers liable for at least $900 million if the company fails.

Even if a crash is averted, and the Government puts bailout money directly into South Canterbury, the taxpayer would face a loss of at least $250 million.

With assets of almost $2 billion, the company is four times larger than New Zealand's two largest failed finance companies, Bridgecorp and Hanover.

It has until Tuesday to secure hundreds of millions of dollars in new investment, which would give it afuture.

The company is in breach of its agreements with investors and banks and has dwindling cash reserves.

This year, its trustees, who represent the interests of thousands of mum and dad investors owed $1.2 billion, gave it until August 31 to resolve its problems.

If it cannot find new capital by then, they might have no choice but to call in receivers.

A market source said negotiations between the firm's management, potential investors, Mr Hubbard and the Treasury were going down to the wire. "The receivership option is now on the table unless they can come up with a reasonable solution by next week."

Kapiti Coast financial adviser Chris Lee - who last week tipped Government involvement in a $750 million bailout - said he believed tax-payer-funded support was necessary "to encourage overseas investors to have a real go. You need to give them an anchor."

Sources close to the company yesterday confirmed that unless the Government was prepared to contribute to the bailout, its prospects were dim.

South Canterbury's chief executive director, Sandy Maier, who has been restructuring the company over the past year, has quarantined its worst assets in what he describes as the "bad bank".

The sources said the Government faced a choice between buying these assets - likely to cost it about $600 million - or letting a Tuesday deadline pass with the risk the whole company will fail.

For its $600 million, the Government would receive assets worth about $350 million, the source said - a $250 million loss for the taxpayer.

But the Government is likely to face a bigger loss if the company fails.

Receivership would trigger a call on the Government's wholesale deposit guarantee to cover not only $1.2 billion in retail debentures but hundreds of millions more in bonds held by other investors.

The Treasury's information indicates it expects the guarantee will result in net losses to the taxpayer of as much as $887 million , and the Weekend Herald understands most of this is related to South Canterbury Finance.

Neither Treasury officials nor Finance Minister Bill English were prepared to comment on the matter yesterday. Mr Maier and Mr Hubbard did not return Weekend Herald calls.

The statutory managers for most of Mr Hubbard's other financial interests issued a report critical of his business practices.

Richard Simpson and Trevor Thornton, of Grant Thornton NZ, said the value of money poured into Hubbard Management Funds might have been overstated by at least 25 per cent.

Mr Hubbard yesterday responded by accusing authorities of trying to ruin his business.

- ADDITIONAL REPORTING: LIAM DANN