SCF boss confident business on track

Investors are reassured after credit rating download. Photo / Dean Purcell

South Canterbury Finance chief executive Sandy Maier South Canterbury Finance chief executive Sandy Maier has reassured investors the business is on track to make an announcement about its recapitalisation by its August 31 deadline after a credit rating downgrade over its worsening cash position.

Standard and Poor's dropped its rating for the Government-guaranteed finance company for the second time in two months late on Friday, lowering its long-term credit rating to CC from B- and affirming its short-term issuer rating at C.

The rating remains on credit watch negative, where it was placed on June 21, which means it has a 50 per cent chance of being downgraded again in the next three months.

"The rating action reflects a material weakening of South Canterbury Finance's liquidity and cash position beyond what we anticipated when we lowered the issuer credit ratings to 'B-/C' and placed the ratings on credit watch negative on June 21," Standard & Poor's credit analyst Peter Sikora said.

"South Canterbury Finance's substantially diminished cash balance - which is now at a level that in our view may see the company seek additional liquidity support - reflects a combination of loan repayment delays and weaker-than-anticipated reinvestment experience and new debenture inflows."

Sikora said the lack of progress in its recapitalisation efforts - as the August 31 covenant breach waiver deadline approaches - had compromised South Canterbury's business viability without the successful progression of recapitalisation plans over the next few weeks.

"Even if recapitalisation plans are progressed, we understand that South Canterbury Finance will also require trustee approval and support to progress and execute recapitalisation plans after August 31 while it is still in breach of trust deed covenants.

"While the company is pursuing a range of recapitalisation options, benefits from these initiatives would only be recognised in the company's ratings once they were sufficiently progressed and a comprehensive assessment was done."

But Maier, who has signed up to the chief executive role only until the end of this year, said the company was making good progress on the recapitalisation of the business.

"There is confidence amongst all parties involved in the recapitalisation process that a favourable outcome can be achieved and that, following the completion of that process South Canterbury Finance can continue to operate as an active supporter of small and medium business enterprises," he said in a statement to the stock exchange.

Maier said South Canterbury was comfortable with its liquidity position and continued to meet all its obligations.

It is covered under the Government's extended deposit guarantee scheme until December 31, 2011.

"Nothing has, or will change to alter the protection that eligible investors enjoy under that scheme."

However the downgrade means the finance company will have to amend its prospectus again.

Speculation emerged last week that the taxpayer may be tapped to prop up South Canterbury in a $750 million recapitalisation plan involving overseas investors.

Kapiti Coast financial adviser Chris Lee has said he believes the company will announce a plan that will involve the Government making concessions to try to help South Canterbury survive.

Another source said last week the deal could involve South Canterbury founder Allan Hubbard being required to relinquish all ownership of South Canterbury and associated companies.

The source understood in return Hubbard would not face any charges that may arise from the Serious Fraud Office investigation into his affairs initiated two months ago.

Hubbard, 83, and his wife, Jean, had their privately owned investment company Aorangi Investments, trust companies and their personal bank accounts placed into statutory management in June.

The SFO has said it is not aware of any such proposal and Maier has also scuppered the idea of the Government being involved.

South Canterbury announced in June that it hoped to get a new equity partner on board, with industry speculation it was seeking $200 million to $400 million, but there has been no update.

- additional reporting by NZPA