SCF receivership to take up to four years – Treasury

The Treasury estimates the receivership of South Canterbury Finance could take up to four years to complete, unless sold as a going concern, with the majority of assets being sold only in the second year of receivership.

The estimates are given in a report dated September 1 – at the same time as other documents revealed the government’s reasons for rejecting a post receivership offer to buy SCF as a going concern.

That offer reportedly came from investor Duncan Saville and was understood to be worth approximately $1.3 billion.

Advisors KordaMentha wrote in this memo to John Park, manager of the retail deposit guarantee scheme that the timing of the deal contained too many risks. 

“There can be no certainty that [the] offer is the best offer that could be obtained. Equally there is no certainty that a better offer could be obtained,” KordaMentha said.

Meanwhile, while this latest offer was being assessed, The Treasury was outlining to the government how a managed receivership might play out.

“Unless a transaction was agreed involving the purchase of SCF’s assets out of receivership as a going concern (which, if this was an option, would take place relatively shortly into the receivership), an orderly realisation of SCF assets would proceed consistent with the Crown minimising its losses and maximising its gains.”

Treasury did note that a carve up of the assets could take up to four years.

“While the receivers’ objective is to sell all of SCF’s assets, the size and complexity of SCF’s business mean that not all assets can be sold immediately.

“As such Treasury anticipates that the receivership as a whole could take up to four years to complete, with the majority of assets being sold only in the second year of the receivership.”

The Treasury noted that South Canterbury’s business was comprised of loans it has made to third parties, some of which were still performing well (the ‘good loan book’) and some of which were impaired (the ‘bad loan book’).

In addition, South Canterbury either owned or was the major shareholder in three New Zealand companies with “significant business value.” These included shares in Dairy Holdings, Scales Corp and Helicopters NZ.

“The good loan book is likely to prove attractive to potential purchasers as a single sale of all the relevant loans. Alternatively, it may be sold in a small number of large blocks.

In all of these cases, Treasury has estimated that it should be able to recover at least [Redacted] of the value of these assets.”

Prime Minster John Key has said the shortfall could be about $700 million but once fees from the guarantee were taken into account, the cost was more likely about $400 million.

“Treasury estimates that the bad loan book could recover [redacted].

“For this reason, it will be more difficult to sell in one block, although it may still attract offers.”