South Canterbury Finance Limited

[minimoke]

I
.. Even the 8.25% SCF debentures offer some amazing alternatives to bank deposits.

And again leading from your post 1031 wouldn't the simplest model be to roll your money into the SCF020's. Why put it into 8% or 8.25% for a year when you can do so much better with the 020's?. I guess the answer to that might be that your Investment Advisor would miss a slice of the action if you went for the 020's under your own steam in preference to the 8% debentures

Certainly there is money to be potentially made out of SCF. But the 8.25% begs the question "what are the SCF lending rates". I presume it will have to be at the very least 9.75% plus broker margin. Thats 8.25% to investors and 1.5% into the Govt Guarantee scheme. So borrowers are paying over the odds for their loans - personal borrowers are paying 14.5% for home renovations when the friendly local bank will do it for around 6%. So who would pay over the odds - distressed borrowers who can't get a better deal else where. The borrowers risk profiles have to flow into SCF books - which will increase SCF's likelihood of a default event. If SCF can get past 31 Dec 2011 what will depositors do when there is no guarantee and the loan book is full of distressed borrowers? Investors could perhaps do better than by-passing the SCF middle man and lending directly to those who borrow from SCF - that way they would be propping up real business rather than a finance company who can't stand on its own two feet.

[Alan3285]

Certainly there is money to be potentially made out of SCF. But the 8.25% begs the question "what are the SCF lending rates". I presume it will have to be at the very least 9.75%. Thats 8.25% to investors and 1.5% into the Govt Guarantee scheme. So borrowers are paying over the odds for their loans. So who would pay over the odds - distressed borrowers who can't get a better deal else where. The borrowers risk profiles have to flow into SCF books - which will increase SCF's likelihood of a default event. If SCF can get past 31 Dec 2011 what will depositors do when there is no guarantee and the loan book is full of distressed borrowers? Investors could perhaps do better than by-passing the SCF middle man and lending directly to those who borrow from SCF - that way they would be propping up real business rather than a finance company who can't stand on its own two feet.

Hi Minimoke,

How would I, as an investor, do that exactly?

Wouldn't my risk be that much greater due to concentration of my investment into one or a few borrowers?

Thanks,

Alan.

[minimoke]

Hi Minimoke,

How would I, as an investor, do that exactly?

you could put your money into, for example, SPY. Alternatively hold onto your money until a helicopter or cool store company comes to market. Or we could learn off AH - he had a talent for attracting people who wanted to borrow off him

Wouldn't my risk be that much greater due to concentration of my investment into one or a few borrowers?

Thanks,

Alan.

Thats like that hoary old chestnut "how many companies should I invest in". Popular opinion seems to suggest (on another thread here somewhere) around 5 - 15 would be a good number. While you have, at face value, some information on the risk provided by SCF we have no idea of the risks associated with the hundreds of companies SCF have lent to. It may only take one or two of those to default on their repayments to SCF to trigger a guarantee default event. I'm not sure if we've seen the make up of the "bad book" - perhaps someone here has some detail - because they are the companies you'd be investing in if you put your money into SCF.

[COLIN]

[QUOTE=minimoke;310309



And since we are borrowing on the house we should take Bernard Hickeys wise words into account: "You're house will lose 30% in value"

/QUOTE]

Splutter..............., splutter!! Not exactly the adjective I would use, I'm afraid.

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The "Chalkie" column in today's Press (and in other Fairfax papers?) headed "GOVERNMENT RISKS OWN GOAL" has no doubt been read by keen followers of the SCF saga. It makes some very valid points, and I couldn't agree more with the concluding sentence:

"The fixing of a $40m problem at Aorangi may create a $2b SCF problem."

[Enumerate]

The "Chalkie" column in today's Press (and in other Fairfax papers?) headed "GOVERNMENT RISKS OWN GOAL" has no doubt been read by keen followers of the SCF saga.
It makes some very valid points, and I couldn't agree more with the concluding sentence:

"The fixing of a $40m problem at Aorangi may create a $2b SCF problem."

I have not read it ... any chance of a bit of a summary?

[Alex]

I have not read it ... any chance of a bit of a summary?

Here's the whole article:

-----------------------------------------------
Why hasn’t Sandy Maier started selling key assets to keep the beleaguered South Canterbury Finance afloat after the backwash from Allan Hubbard’s statutory management?
The Government’s move to put Allan Hubbard and a group of associated trusts into statutory management may prove a massive own goal.

The move has not only exposed the underdeveloped business plan of South Canterbury Finance chief executive Sandy Maier, but it has undone the Government’s own sneaky efforts to keep the Hubbard-associated finance company orderly.
Last Friday Maier was reported in effectively commenting on debenture inflows since Hubbard was poleaxed by the government regulatory authorities.
quoted Maier as saying SCF could pay maturing investments ‘‘for now’’.
‘‘No question that if people cease sending in new money and cease rolling over sooner or later, probably sooner, there will be a problem,’’ he said.
Asked if SCF could pay maturing debentures, he said: ‘‘The answer for now is ‘yes.’ It’s my job to ensure it stays ‘yes’.’’
Maier is arguably too honest. You don’t have to search between the lines to judge that money flows into SCF have dissipated since brand Allan Hubbard has been dented (they might be marching in support for him in Timaru, but the rest of the country suspects when the Serious Fraud Office is called in, not only poor record-keeping is at stake).
Maier’s words contrasted with those he used after a series of investor meetings spruiking debenture holders to reinvest their money.
He described those meetings as ‘‘fantastically successful’’ and having ‘‘wildly met or exceeded our expectations’’.
SCF has just under $1 billion of deposits maturing about the October deadline for the first government guarantee scheme.
Maier was reported as saying that about half of that amount was being reinvested or pledged.
But it appears that even offering the ridiculously attractive rate of 8 per cent, the government-guaranteed SCF is struggling to stay liquid.
The extension to the government guarantee only ever bought time to fix the balance sheet, which needs to be either heavily reinforced with equity or downsized.
What has puzzled Chalkie is why Maier has not been trying to move quickly in terms of asset sales. He’s seemingly putting all his chips on the government guarantee buying Hubbard enough time to raise fresh equity in the group.
Surely the situation has appeared more desperate than this from the inside, because it sure hasn’t looked fresh from the outside.
Maier has talked about SCF having three businesses – a good finance company, a bad loan book and a ‘‘private equity’’ portfolio of businesses.
The point is SCF hasn’t got enough equity to support all three businesses. SCF is like an overgeared property developer wanting to keep the holiday house on Waiheke, the Porsche and the Parnell mansion.
SCF had at the time of its last report (adjusted for Hubbard’s subsequent equity injection) about $170 million of tangible equity supporting business investments of $400m and $1.5 billion of finance assets.
If the company really wants to keep all these assets an additional (rough stab) $300m of equity is needed. That’s unlikely to be raised, so why hasn’t SCF been selling the business assets which are so ‘‘equity needy’’?
There has been a desperate need to monetise assets – the big ones being Helicopters (NZ) (supposedly worth $120m-plus) and the 34 per cent stake in Dairy Equities (about $100m).
Gee, those would be useful amounts to be putting into the kitty right now as well as getting the buyers to refinance the businesses from someone other than SCF. If Maier had started this process in March he may have already brought in $300m of cash.
Maier has been stuck between two masters. Looking pretty much like a government appointee, his one equity owner is Allan Hubbard, a reputed magpie with more appetite for debt than for selling his beloved assets.
Perhaps Hubbard has effectively blocked Maier from selling Helicopters NZ or Dairy Equities? At times it has been hard to know where the power has resided in this relationship, although it is now with Maier.
Chalkie has heard conspiracy theories that the SCF directors encouraged the statutory management move so the board could begin selling businesses.
If this is true, they and the Government have seriously miscalculated the pull the untarnished Hubbard had with debenture investors.
It will be ironic if the Government move effectively results in SCF going into liquidation prior to the extended guarantee scheme kicking in. Ironic because the Government bent over backwards to extend the guarantee to SCF, which didn’t deserve the privilege.
Chalkie has written that he believesStandard and Poor’s granting of an investment grade rating in March for SCF was nonsensical and probably born of political pressure. The nonsensical bit is evident by the fact the rating agency has subsequently downgraded the company several notches before seeing the next balance sheet.
Once the rating was secured, the Government moved with indecent haste in terms of extending the guarantee even though SCF’s balance sheet was miles away from meeting the criteria set down by the Reserve Bank.
The extension of the guarantee to SCF appeared a jack-up by the Government which did not want New Zealand’s biggest finance company going into liquidation/ receivership or the bill under a disorderly wind-up scenario.
All the Government’s efforts to protect SCF and its liability under the guarantee could be undone by the decision to place Allan Hubbard into statutory management.
The fixing of a $40m problem at Aorangi may create a $2b SCF problem.
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[percy]

Well done Alex.

[Enumerate]

Yes, thanks Alex.

Best commentary on the SCF situation I have seen from the fourth estate. I can see why Chalkie has so many devoted followers.

I think Chalke's point about $300million equity is true, if they want to keep all the assets. I seriously doubt whether the private equity or "Bad Bank" parts will be kept. The fact that neither Scales nor Helicopters has been made part of the charging group tells me that AH wants to keep these assets intact - to be repatriated back into Southbury, say.

[COLIN]

Some very strong appointments to key senior management positions, announced today. I doubt if people of this experience and calibre would be risking damage to their career paths if they thought they were joining a foundering ship. I find today's message from Sandy Maier most encouraging.

[Enumerate]

I doubt if people of this experience and calibre would be risking damage to their career paths if they thought they were joining a foundering ship. I find today's message from Sandy Maier most encouraging.

I agree ... it seems to be a very positive development.

I wonder if Sandy has any jobs going in the IT shop?