The government appears to have effectively taken control of South Canterbury Finance even if technically it does not own the stricken finance company.Finance Minister Bill English today announced the government is moving in to repay the company's deposito
The government appears to have effectively taken control of South Canterbury Finance even if technically it does not own the stricken finance company.
Finance Minister Bill English today announced the government is moving in to repay the company's depositors.
The taxpayer is writing the company’s trustee a $1.6 billion cheque to repay all investors, not just those whose holding is covered by the government’s retail deposit guarantee scheme.
The alternative was to not pay those who are not covered by the guarantee, but the government would have had to keep paying them interest on their investment.
That would have cost the government an extra $100 million, Mr English said.
The government does not actually own the company, Mr English was at pains to emphasise.
“The legal owner of the company is the receiver, as I understand it,” Mr English told a press conference this afternoon.
“The government just happens to be a very close adviser of the receiver.”
Of course, $1.6 billion – about 0.85% of annual GDP – will buy anyone the right to give quite a bit of advice.
The government expects to get a fair chunk of the $1.6 billion back. The net cost to the taxpayer is forecast to be about $600 million, Prime Minister John Key indicated yesterday, once various company assets are sold.
That though could take some time. The other point Mr English spent some time on was that the government’s stumping up of the cash to pay investors means the receiver can take his time selling off the company's assets.
“This means there will be no fire sale of assets.”
It also appears the government has a preference for selling the company as an entity rather than breaking up the various assets.
“Our advice is South Canterbury Finance has more value as a whole enterprise than if it was broken up,” Mr English said.
“There’s still an option to sell it as a going concern.”
Asked whether he would have a view if the government-owned New Zealand Superannuation Fund bought the company, Mr English – who last year directed the fund to invest more money into the New Zealand economy – said that as a taxpayer he might have a view but as a finance minister he is legally precluded from having a view.
But in general, "we are not keen to get into the finance company business."
Meanwhile, the government does not have to go out and tap the financial markets for an extra $1.6 billion to cover the cash injection.
The government has already set aside $900 million for the retail deposit guarantee, and the Treasury’s debt management office has also raised more cash than it needs over recent months.
