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The fallout from the Government move on South Island millionaire Allan Hubbard has forced the $1 billion South Canterbury Finance to halt its call for funds.
While the South Island's richest man castigated the Government for seizing control of his affairs, his bigger embattled Government-guaranteed business was forced yesterday to suspend calls for secured debentures and non-guaranteed unsecured deposits as part of its own rescue plan.
Commerce Minister Simon Power said the main objectives of statutory management of Allan and Jean Hubbard, their Aorangi Securities and seven charitable trusts were to prevent fraud and reckless company management, to protect investors and to enable the orderly administration of affairs. A number of matters relating to Aorangi had also been referred to the Serious Fraud Office to investigate potential breaches of the Crimes Act, Power said.
But Sandy Maier, South Canterbury Finance chief executive, predicted it would be "only days" before the company re-issued documents and was again able to allot securities. Exactly how the financier will explain the fraud investigation of its majority shareholder in a document calling for the public's money is yet to be seen.
Despite Maier's reassurances that "the process already under way to source new equity funding for the company will continue", the financier posted on its own website a statement that it could not carry on accepting money it needs to deal with an expiring wall of maturities until it formally tells investors about the investigations.
"The South Canterbury Finance investment statement and prospectus are currently being amended. We are unable to accept deposits during this process so the prospectus, investment statement and other relevant documents are temporarily unavailable," a statement said.
Interests of Hubbard and wife Margaret (known as Jean) went into statutory management on Sunday in a rare move, as the Government tried to secure $134 million of loans.
Shareholders' Association chairman Bruce Sheppard predicted Aorangi's fallout in South Canterbury would be substantial.
"This doesn't affect South Canterbury? Yeah, right. Although South Canterbury Finance is technically separate from Aorangi, it will affect confidence. If Richard Long can sell Hanover junk, it was Hubbard's reputation that sold South Canterbury. Take that away, it's a harder sell. Like it or not, you can't detach from the brand of Hubbard, least of all in the South Island," Sheppard said.
Murray Weatherston of Financial Focus said he too was concerned about the bigger business but he had questions about the Government move.
"There's a 50-50 chance South Canterbury Finance will survive. I told Maier the only reason I'm supporting the company is the Government guarantee. Why would I put my money in an Australian-owned trading bank at 4.5 per cent compared to a Government-guaranteed business at 8 per cent? It may have been a dumb decision for the Government to extend the guarantee from the country's point of view," Weatherston said.
Many of his clients have millions invested in the business but he questioned what the Securities Commission report had found and why it took from February, when the complaint was made, to June before it acted.
The taxpayer is backing much of South Canterbury, the strapped-for-cash loss-maker in debt to many defunct Auckland property developers and now trying to get money to deal with its own financial trouble.
Maier said an amended statement would soon go to directors then the Companies Office in Wellington. The freeze was not unusual and South Canterbury had to withdraw documents before.
"We've been in and out of the market a number of times. It's not abnormal. When there's a material change, we have to amend the prospectus and investment statement," he said.
But he was also distancing South Canterbury Finance from Hubbard, stressing everything except the majority owner.
"He is not a director, he's not on the board. The status of the majority shareholder - whether he's stubbed his toe or where he is under investigation - is irrelevant to us. Allan's affairs are Allan's affairs," Maier said.
He could not say how much damage the Government move would cause the business or its 30,000 investors.
"We will have to see. It's hard to predict. There are two categories of people: those loyal and faithful to Allan and those people who don't pay any attention to Allan."
Weatherston said while Maier might not have been appointed by the Government, "he's got the Treasury's imprimatur on him".
Maier will probably leave South Canterbury when his contract ends in December, saying any "turnaround" which took longer than a year had failed. Weatherston predicted South Canterbury would limp on and then fail post-guarantee in early 2012.
Not all investors have the state's backing: shareholders in three South Canterbury companies which trade on the NZDX have lost three-quarters of their money and one complained loudly at last Thursday's Auckland meeting.
The Government's sudden move cast a pall over Hubbard's business dealings after it was revealed on Friday that he had been transferring huge chunks of his company stakes into trusts which he was then putting in the hands of Timaru surgeon Dr Albert Makary and lawyer Edgar Bradley.
Makary and Bradley are also shareholders in Hubbard's Southbury where he holds his South Canterbury Finance stake.
Maier said he did not know in advance of the Government move.
"I had no idea there were serious issues and it was to my surprise in terms of the severity of the issues," he said.
Hubbard said the Government move was misguided and mortgagee company Aorangi Security had a $40 million surplus.
"I am sorry that this action was taken by a Government official with little consultation with myself and can only conclude that the Government official has been misguided in his action," he said. .
"I don't believe in the history of New Zealand that any person has acted more honourably than myself."
