S&P downgrades South Canterbury

Photo / Dean Purcell

Standard & Poor's yesterday downgraded South Canterbury Finance's credit rating.

S&P dropped the long-term credit rating from a B+ to B- and short-term from B to C, putting it on CreditWatch Negative.

Derryl D'silva, credit analyst, is concerned about SCF's outlook.

"The downgrade reflects our view that news surrounding SCF's key shareholder will likely erode debenture investor confidence which is critical to SCF's ability to manage its liquidity and its significant debenture reinvestment requirement. We are also now concerned that the company's recapitalisation efforts could be compromised or delayed," D'silva said.

"SCF's cash balance has not increased as rapidly as factored into the previous rating and there is now greater uncertainty around the support from SCF's key shareholder Mr Hubbard," D'silva said.

South Canterbury finance chairman Bill Baylis and chief executive Sandy Maier both downplayed the downgrade.

"By no means does this mean the end for South Canterbury. The credit downgrades have no effect on the Government guarantee," Baylis said.

Maier said directors' resolve to build on good progress was only strengthened.

"For eligible investors, nothing has changed regarding the Crown's extended retail deposit guarantee scheme which remains in place through to 31 December, 2011," Maier said.

South Canterbury Finance reissued its prospectus yesterday morning but will be forced to issue a memorandum after the downgrade.

Page nine of the 158-page prospectus disclosed the trouble, saying Jean and Allan Hubbard, Aorangi Securities and seven charitable trusts were in statutory management "and that certain matters relating to Mr and Mrs Hubbard had been referred to the Serious Fraud Office".

Commerce Minister Simon Power confirmed that South Canterbury Finance is not part of the management order, the prospectus said.

Treasury has confirmed that all eligible investors remain covered by the Crown's retail deposit guarantee scheme until December 31 next year.

But the fallout from the inquiry is unknown.

"The implications of the statutory management for the various arrangements between the company and entities associated with Mr and Mrs Hubbard are unclear at this stage. The company is currently working through matters in detail to identify the consequences for it (both direct and indirect) as a result of the statutory management appointments," the prospectus said.