What happens to the value of the Preference shares if the Government does buy into S.C.F?
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What happens to the value of the Preference shares if the Government does buy into S.C.F?
Fascinating how putting a few $$$ into SCFHA as a punt can warp a person's thinking.
http://www.youtube.com/watch?v=5j2F4VcBmeo
Depends on the nature of the deal; or, indeed, the likely aftermath if there is no deal.
Should SCF fail - the SCFHA become subordinated debt ranking behind all the secured debenture holders. I think there is some prospect of recovery, for holders, even in this scenario. $120m of pref shares could be worth as little as $12m.
The "play" in this scenario is that the SCFHA holders are likely to be able to determine who conducts the administration and potential liquidation process. This is because the government becomes the single senior creditor (for a very large amount of secured debt) but in NZ law - you need a majority by amount and by number to control the creditors meeting.
The irony is that the government would be dealing with a hostile block of SCFHA creditors = all of the mind that it was the clumsy actions of Minister Power and his SFO goons that put everyone in this unenviable position. I think I would propose putting Hubbard Churcher as Administator - overturning any government appointment.
Of course Minister Power, who has shown a flagrant disregard for due process in the justice system, would probably institute some act of parliament to overturn SCF creditor rights. The mentally deficient NZ fourth estate would probably find all of this perfectly acceptable in their world of "the end justifies the means". Sophisticated global investors would take one look at these arbitrary interventions and assess that Robert Mugabe's Zimbabwe would be a safer place to invest.
The survival options for SCF have always been:
1) Sell the "bad bank" for no less than current impaired valuation;
2) Trade the equity assets for genuine tier one capital; or
3) Find a new source of equity.
Any attempt to compromise the interests of the SCFHA holders in a deal that involves any or all of the above would trigger administration, at this late stage.
The most likely option, in the survival scenario, would be for SCFHA holders to maintain the equity value of their investment but lose income for a period of time while SCF restructures and rebuilds. The machinery for achieving this is already present in the trust deed.
My thoughts...
I would have thought not much different to what happens if any investor buys in - i.e. probably issue cancellation notice for dividends and then put a special resolution to a meeting of Holders that somehow substantially reduces the obligations to holders/value of prefs. As I read it, the divs are non-cumulative once cancelled and the only lever noteholder will have is their option to wait some years until ordinary shareholders want to pay themselves a div and have to first re-instate divs on prefs. Maybe 40cps or less with a valuation report that says it's fair?
Alternatively, any deal will be made conditional on pref holders agreeing to take a haircut on the value of their prefs anyway, when faced with the alternative of a long liquidation process which might or might not yield them any return in 5 - 10 years time... (probably not - liquidations being generally so costly!). Maybe 20-25cps with a valuation report that says not fair but reasonable?
Other option, maybe get offered to convert to ordinary shares and left with a minimal residual value after dilution by new investor - though seems unlikely a new investor would want these disgruntled's tagging along.