South Canterbury's $150m deal sparks SFO complaint

A complaint has been lodged with the Serious Fraud Office and the Securities Commission over a $150 million deal between South Canterbury Finance and its parent company months before it fell over.

The complainant, blogger David Hillary, has been a close follower of the South Canterbury Finance situation since well before it collapsed in August owing $1.6 billion.

In his complaint, delivered today, he claimed that South Canterbury management overstated the equity injection from its deal with Southbury Corporation by as much as $140 million.

Mr Hillary’s analysis found that instead of the $152.5 million in equity South Canterbury’s management credited to the company from the transaction, a complete accounting would be to credit only $11.8 million in new equity.

And he claimed some officials in Treasury knew the deal was virtually worthless but did nothing to stop the transaction or remove South Canterbury from the Deposit Guarantee Scheme for what Mr Hillary described as a “scandalous transaction”.

He highlighted a recent comment in Parliament by Associate Finance Minister Steven Joyce, who said “Treasury’s view of the transaction was that at worst it made no difference to the Crown.”

Mr Hillary also questioned where a document written by Northington Partners to Treasury about the transaction had gone, pointing out that it hadn’t been released by the Treasury.

Another report on the transaction, written by Simmons Corporate Finance, concluded that the acquisition was done on “arms’ length terms”.

This report has been released by the Treasury.

The complaint alleged the planning, representation, approval, execution and reporting of the transaction may have breached the Crimes Act 1961, the Financial Reporting Act 1993, the Companies Act 1993, the Securities Act 1978, and/or the Fair Trading Act 1986.

Mr Hillary told the NBR: “Basically what came in the front door went out the back door” in the transaction.

He also spoke with Allan Hubbard this morning and asked him who master-minded and planned the Helicopters NZ transaction.

According to Mr Hillary, Mr Hubbard said that it was Neil Paviour-Smith from Forsyth Barr who looked into all the companies affected and inter-company balances and their valuations.

Mr Hillary asked Mr Hubbard specifically about the loan from South Canterbury Finance Limited made to Southbury Group Limited, and whether it was impaired as a result of the transaction.

AH: "It was done at full value ... you either paid the debt off and got fewer shares, didn't you?"
DH: "That was the issue, when I looked at the transaction much later in June, I thought that if you had have done it that way, and paid off the debt, and then see what's left over to support the company with new shares, the amount of new shares would be much much less."
AH: "It would have been, but it mightn't have been enough to make the company kosher with its trust deed requirements."

Later Mr Hillary asked Mr Hubbard about the how the transaction worked or didn't work, and he said: "Theoretically, it should have worked, they were good companies, and you know they had good earnings"."