SCF lips sealed on loan to developer

South Canterbury Finance released to advisers a secret document on the future of the business that revealed the company wants more liquidity. Photo / Dean Purcell

South Canterbury Finance loaned millions to failed developer Greg Olliver for a Marlborough vineyard project.

SCF has refused to supply any information on its largest loans but wants $1.25 billion from investors.

Court records showed SCF was a creditor involved in loans to interests associated with the Auckland developer and a case was heard in the High Court at Auckland last May.

That was over a bankruptcy application under the terms of the Insolvency Act and Olliver's creditors listed on the court decision were St Laurence Lending, Strategic Finance, Westpac, Commonwealth Bank of Australia, Auguste Holdings, NZ Finance and the Public Trust.

Justice Faire said SCF and Commonwealth Bank were owed $48.5 million over Olliver's failed Marlborough vineyard redevelopment deal.

"The debts owed to the Commonwealth Bank of Australia and to South Canterbury Finance arise from borrowings from both entities, which were undertaken to fund the purpose of the property in Marlborough," he wrote, adding that Commonwealth had first mortgage and SCF second.

Court records showed creditors claiming $92.5 million from Olliver, who said he was paying SCF income from his Marlborough farm to service his debts.

SCF says it will continue to play a leading role in its industry after its $1.25 billion restructuring and recapitalisation.

Executives drumming up interest in the company's huge capital-raising exercise are telling investment experts how much stronger the business will be once it gets the money.

A 20-page document, Update for Financial Advisers, is being presented by chief executive Sandy Maier and it indicates where the business is going.

But receipt of the document comes with a gagging demand.

Advisers can only use the presentation's slides and information "for the sole purpose of considering investing in securities issued by the company", SCF says.

The Herald received a copy of the secret document, which showed the business wants more liquidity. On April 16, it had cash of about $41 million but it said "SCF expects to improve the liquidity position in the coming months".

Shareholders Association's Bruce Sheppard predicted SCF would fail and would soon be run by an arm of the Government.

"I wouldn't recommend anyone invest in it," he said.

Professional institutional investors have also rejected the $1.25 billion offer as a rescue attempt.

But SFC's 20-page presentation mapped out a path to achieving its recapitilisation via a four-pronged strategy, which involved being accepted into the Crown extended retail deposit guarantee scheme, offering stock and raising deposits to get the $1.25 billion, selling loans and investments, raising $22-37.5 million equity.

SCF is New Zealand's largest finance company with $477.8 million - the largest slice or 32 per cent of its loan book - with the property/business sector. Much of that is in commercial property projects where it has less than first-ranking positions.

More than 30,000 people have $1.9 billion with the Timaru-headquartered financier that needs to raise the $1.25 billion to replace maturing term investments.

Sandy Maier, chief executive of the business, which has a Crown guarantee, said that since late in December the business had reaped about $140 million after properties were sold and loans reassigned to other lenders.

The 20-page document says SCF's core finance business is "sound" and that eventually it will comply with its trust deed covenants, which it has breached.

The demise of other finance companies helps the business.

"SCF is well-positioned to take advantage of demand for credit in the restructured finance market with few players likely to remain," its presentation says.

"Finance sector is not well-serviced by the trading banks, particularly post the recent credit crisis. (The) number of competing finance companies reduced to four or five key players. Strong barriers to entry now exist," it said, citing capital and credit-rating requirement rules for non-bank deposit takers.

"SCF's core lending business (ie excluding its investments and non/core impaired loans) remains one of the largest and best diversified in the market," it said, citing a national distribution chain and strong business relationships and channels in lending and funding.

"A recapitalised and restructured SCF is well-positioned to reap the benefits of a sector that has been significantly reduced and for which there are now high barriers to entry."

Ernst & Young completed an audit and the business had qualified for the Crown's extended retail deposit guarantee scheme, it said.


Funding base

South Canterbury's money comes from:

* Debentures: $1.4 billion.

* Bonds: $350m ($250 million of that is 2-3 years).

* Unsecured deposits: $14 million.

* Facility (NZCF): $75 million.

* Other funding $31 million (mortgages/unsecured deposits).

* Seeking: $1.25 billion.

Source: South Canterbury Finance's Update for Financial Advisers, April, 2010