Allan Hubbard’s Southbury Corporation has sunk another $152.5 million of equity into embattled finance company South Canterbury Finance, which has just reported a massive $154.9 million loss for the first half.
The unaudited, preliminary loss was largely due to the company increasing its provisions for losses on impaired or non-performing assets by $180.3 million.
A total of $229 million of losses on asset realisations and impairments were incorporated in the result.
Southbury Corporation has already raised $27.5 million in convertible notes for South Canterbury and this new equity injection of $155 million is unlikely to complete the restructure.
Forsyth Barr is continuing to work with South Canterbury to advance proposals to further strengthen the capital base of the company, the statement said.
Capital raising
Southbury Corp raised the funds by selling its 100% shareholding in Helicopters New Zealand and 64% of the shares of Scales Corporation, both Hubbard companies, to South Canterbury.
The total purchase price was $162.5 million and consisted of 317.7 million new shares issued by South Canterbury to Southbury and $10 million in cash.
The transactions were reviewed by independent experts approved by the Crown, under the company’s Crown guarantee, who certified that the acquisitions were at fair value and on an “arms length” basis.
South Canterbury now holds approximately 79.7% of the equity of Scales Corporation and 100% of Helicopters (NZ).
Related party exposure
A feature of South Canterbury’s balance sheet in recent times has been its related party lending, which blew out to $220.31 million as at September 30, 2009, and is one area that Standard & Poors has been targeting for improvement in its credit rating assessment.
South Canterbury has financial covenants in its trust deed, which would have been breached as a consequence of the Helicopters NZ and Scales acquisitions.
These covenants relate to the level of single party exposure and the level of total equity investments to total shareholders’ funds (which is greater than 100%).
Trustees Executors Limited has granted a waiver from compliance with these two covenants until they are next tested following completion of the Company’s June 30, 2010 financial statements.
Allan Hubbard confident
Mr Hubbard, a Timaru chartered accountant, corporate dairy farmer and South Canterbury chairman, said the transactions would initially restore, then improve the capital position of South Canterbury, which had been adversely impacted by an increase in provisions for the six months to December 2009 arising from "extended weakness in economic conditions and depressed asset prices".
He said Scales and Helicopters NZ were both excellent businesses, with earnings of $30.2 million and $35.4 million respectively for the year ended June 2009.
“The acquisition of Helicopters (NZ) and Scales Corporation will provide a superior outcome for all stakeholders.”
Including the Scales Corporation and Helicopters (NZ) transactions, the net equity of South Canterbury Finance on a pro-forma financial position at 31 December 2009 was $252.8 million.
On the same basis, the Company’s equity ratio was approximately 11.8% of total assets of $2.15 billion.
Financial performance
South Canterbury chief executive Sandy Maier said everything other than property related sectors were performing satisfactorily.
“The rural sector is benefiting from the upturn in the price of milk solids which has in turn had a flow-on effect to businesses in provincial areas where the bulk of South Canterbury Finance’s lending customers and assets are located,” Mr Maier said.
“The underlying trading results show a breakeven result for the six months which is creditable given the significant disruption and costs experienced during this period,” the company said in a statement issued this evening.
“The half year result incorporates a total of $229 million of losses on asset realisations and additional allowances for impairment. The underlying trading results show a breakeven result for the six months which is creditable given the significant disruption and costs experienced during this period,” Mr Maier said.
South Canterbury said it was working with the Treasury on its application for acceptance into the extended retail deposit guarantee scheme effective from October 2010 through to December 2011.
Mr Maier said further restructuring and asset sales would be undertaken to strengthen the company’s position.
“The enthusiasm of the staff and management with the active support of the directors and advisors for the tasks undertaken has been unstinting and gives great encouragement for the future of the business.”
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Duncan Bridgeman
Mon, 01 Mar 2010