13 Apr 2010

South Canterbury Finance releases prospectus

1:57 pm on 13 April 2010

A fund manager is warning investors to carefully assess South Canterbury Finance's prospectus before parting with any money, despite the assurance of Government backing.

South Canterbury Finance on Monday lodged its prospectus, offering $1.2 billion of Crown-guaranteed debenture stock and $50 million of non-guaranteed unsecured deposits.

In it, the company's auditor, Ernst and Young, is not as optimistic as South Canterbury's directors about the company's future as a going concern.

It says there are uncertainties about the lender's funding needs, capital levels, compliance with regulatory requirements and its trust deed, and it warns any changes to these are not accounted for.

Milford Asset Management executive director Brian Gaynor says the prospectus is long and complex, and investors need to fully understand what they are being asked to invest in.

"South Canterbury Finance plays a very important role in the economy and it has a long history and it has been a very good company.

"The only thing I am really saying at the moment is that prospective investors should make sure they fully understand and fully read the prospectus before they invest any new money in the company."

The firm, controlled by Alan Hubbard, will undertake a roadshow to convince investors that it has taken the right steps to secure its future.

Kapiti-based sharebroker Chris Lee says without the Government guarantee the company's future would be "worse than bleak"

"With the guarantee they've now got about 20 months to prove to everybody that their new cleansed company has a business model that will work."

Mr Lee says politicians and businesses need South Canterbury Finance to work, because there are not enough money-lenders in New Zealand.

He says the Ernst and Young audited revisions should have rooted out all rotten and dubious loans.

Third revision of losses

The South Island-based lender on Monday revised its losses for the third time this month, which worsened to $198.66 million for the six months to December due to higher bad debts in the property development market.

South Canterbury Finance had reported a loss of $191.4 million loss on Friday, which superseded the $154.9 million loss it announced earlier this month.

The finance company's accounts show bad debts totalled more than $209 million, as it set aside more money for impaired property loans.

Total equity stood at $207 million, while at least another $22 million will be injected by investor George Kerr's Torchlight Fund.

That money helped South Canterbury Finance comply with a breach of its Trust Deed, for which it received a waiver.