South Canterbury Finance investors, including all bondholders but not preference shareholders, have been told to spend their cash wisely when they are reimbursed by the government a total of $1.6 billion following the company’s receivership today.
In addition, the government is negotiating a loan of up to $175 million to the receivers for repayment of prior charges over South Canterbury’s assets, including a $100 million facility arranged through investor George Kerr’s Torchlight fund.
The payment under the Crown guarantee appears more favourable to South Canterbury investors than to those in other failed finance companies in recent times.
This is because some depositors and investors in long-dated bonds will now be repaid – having earlier been told not to expect anything.
This also represents a significant payday for plucky investors who bought South Canterbury 2012 bonds in the last days of last week at an 80% discount to their value today.
South Canterbury chief executive Sandy Maier said today that the payout under the guarantee scheme would lessen the impact on the South Island economy, where much of the company’s funding base and lending activities were based.
“Very shortly there’s going to be a massive infusion of liquidity in the South Island as all these debenture holders and bond holders get their dough,” Mr Maier told a media conference in Christchurch.
“I hope they do wise things with the money next.”
All up the government will repay about 35,000 investors $1.6 billion, hoping to recover as much as it can from the receivership. Repayment of prior charges gives the government first call on South Canterbury's assets, which the receivers are expected to sell down over time.
Mr Maier said the wider effects of the receivership on the South Island economy was also lessened by the fact that South Canterbury had not been doing any new lending for most of this year.
Government defends decision
Finance Minister Bill English said repaying all depositors as quickly as possible would ultimately reduce the cost to the taxpayer by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.
"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets,” he said.
"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.”
A good day for Torchlight investors
Pyne Gould Corporation subsidiary Torchlight Investment Group recently increased a $75 million credit facility to South Canterbury to $100 million, of which PGC contributed $15 million.
The facility was secured ahead of other charges under the trust deed, and was essentially a first mortgage over South Canterbury’s charging subsidiaries.
Mr Maier said he understood Torchlight would be paid out first and foremost.
Torchlight is chaired by PGC cornerstone shareholder and director George Kerr.
“Today has been a successful investment for them,” Mr Maier said.
Not so lucky are preference shareholders owed about $100 million and South Canterbury’s ordinary shareholders, who consist largely of founder Allan Hubbard and his associated entities.
Down to the wire
Mr Maier said he worked through the night trying to secure a last minute rescue package for South Canterbury but in the end a deal could not be reached with private investors.
When he was appointed chief executive on December 23 the company had just $7 million cash in the bank and last night the figure was about the same.
“So in essence, I guess you could say we haven’t made much progress – however we paid hundreds of millions of deposits off and shrunk the book.
“This is a business that hasn’t disappeared in a puff of smoke. Ultimately it will change hands and that process will go on. It’s a going concern today and has a certain ripeness to it,” he said.
Mr Maier confirmed talks with three interested parties right to the end.
One was a large offshore South East Asian/United States Trust, which was engaged in talks through to 4am this morning.
The other two included a consortium of partially overseas and partially local investors and another offshore group with a history of investment in New Zealand.
Mr Maier said there were a number of sticking points but overall South Canterbury’s board didn’t believe the price or the terms of offers were right.
“Some of it was around what they were going to charge us for due diligence fees, break fees etc, but the problems were infinite in variety. “There wasn’t one in there made for us.”
South Canterbury is split into three business units.
These consist of a bad bank with loans of a nominal value of $700 million (estimated to be worth about $250 million today), a good bank with $900 million worth of loans and a private equity division holding investments in Scales Corp, Helicopters NZ and Dairy Holdings.
While the upfront cost to the Crown is about $1.6 billion plus the prior charges, the government expects to recover the “bulk” of that as the receivers sell the assets over time.
"The final expected net cost to the Crown is already provided for in the Crown accounts within the overall provision of about $900 million for all companies covered by the scheme," Mr English said.