A capital raising is imminent for Allan Hubbard's troubled South Canterbury Finance with the company today admitting further provisioning is required for impaired assets.

In a market update, South Canterbury said it will report a loss for the six months to December due in part to provisioning for assets previously identified as impaired.

“In addition, the early redemption of derivative instruments associated with the US private placement facility and the impact of fair value adjustments on investments will have a negative impact on results for the half year.”

The company also said that it had discovered adjustments might be required to the reporting of certain items in the June 30, 2009 audited financial statements.

For instance, the valuation used for a preference share investment in South Island Farm Holdings should have been at fair value rather than cost, under the applicable financial reporting standard.

The company’s latest prospectus revealed a July purchase of $74 million of preference and ordinary shares in South Island Farm Holdings, a company formed in March by Hubbard and owner of 20 dairy farms.

An independent valuation of that deal is being undertaken.

“The company is currently reviewing the extent of potential prior period adjustments and at this stage believes that they may not have material impact on the current position of the company,” South Canterbury said.

The company recently replaced its auditor – Woodnorth Myers – with the larger and more experienced Ernst & Young.

Principal owner Mr Hubbard has already been forced to inject funds and underwrite bad loans after South Canterbury posted a net loss of $69 million in the year through June and was forced to renegotiate repayment terms with a group of US investors after it lost its investment grade credit rating.

Mr Hubbard then brought his finance, helicopter and apple export companies (Scales Group) under a new umbrella, Southbury Corporation, and completed a $27.5 million private placement to inject capital into South Canterbury.


New South Canterbury chief executive Sandy Maier has reviewed the business since his appointment just before Christmas.

“The results for the first six months of the year will not be representative of the historical achievements of the company’s business nor of the strength of its future performance,” he said in a statement.

South Canterbury has applied for acceptance into the extended Crown retail deposit scheme, which commences on October 12, 2010.

Until now most of the talk from the company about its recapitalisation plans centred on its major shareholder Southbury Group, which was slated as a sharemarket listing candidate.

But today it appears South Canterbury is headed for a more direct capital raising proposal that could see the finance company bringing in new investors and perhaps a sharemarket float.

Investment bank Forsyth Barr has now been “mandated to source funding to strengthen the balance sheet of South Canterbury Finance.”

On a brighter note, South Canterbury said it has experienced a strong inflow of new investment money, averaging in excess of $1.7 million per day through January.

The company expects to report its half year result later this month or early in March.