South Canterbury Finance Limited

[Balance]

Why? Air NZ was essentially the only air carrier in NZ at the time with some iconic/ national status. There are no shortage of financial institutions investors can place there money in or loan from. From a public policy perspective the consumer still has a lot of choice. I think Govt intervention will be unpalatable - what about the Hanover / Bridgecorp investors. What gives SCF Special Status? Air NZ still had a robust brand - SCF (despite Sandy's best efforts) is in tatters.

The Aorangi Stat Mans are encouraging farmers to seek alternative lending facilities - interestingly at lower rates than they are currently paying.

Put in the receivers and see what value they can extract to re-imburse the tax payer for the Deposit Guarantee.

Hanover/Bridgecorp did not have a govt guarantee - SCF does. So the government is on the hook anyway.

Take out the property development loans and SCF has been a good financial institution for small Island businesses and companies over the years.

The trading banks are certainly not prepared to do that business - equipment leasing etc.

[Balance]

Hubbard report an eye opener

Duncan Bridgeman | Friday August 27, 2010 - 11:09am

Say what you like about the process by which Allan Hubbard, his wife Jean and their associated entities were placed into statutory management but the evidence presented today appears to provide ample justification for the move.

The second report, released this morning, should be an eye opener for those investors in Aorangi Securities and Hubbard Funds Management who appeared unconcerned by the lack of paperwork and security over loans uncovered in the first report.

Their “blind faith” has been torn apart by the allegations of Grant Thornton’s investigators Richard Simpson and Trevor Thornton.

This report is ultra damning for those investors with a combined $83 million tied up in Hubbard Funds Management with concerns that investments in the form of cash and shares never existed and investments were significantly overstated.

The overall theme of false accounting, misleading investors, poor accounting records and asset shifting are remarkable claims against a man who started business as an accountant 60 years ago.

How much of this management style was bedded into South Canterbury Finance over the years can only be speculated on but it surely underscores the difficulties that firm has found itself in today. South Canterbury securities are currently in a trading halt pending a material announcement.

In Aorangi Securities, Mr Hubbard has staked investor funds in the dairy industry and other commercial entities, many of which he is, or was, the major shareholder.

Aorangi received $96 million from individual investors and in turn, invested $130 million in farming entities, the Te Tua Charitable Trust and other commercial entities.

In March this year, Mr Hubbard had to mortgage his own assets and introduce his own cash to make the March interest payments, according to the report.

This could be seen as an honourable move on Mr Hubbard’s part, unlike some of the controlling shareholders of finance companies which went down the gurgler.

Mr Hubbard has also pledged to investors that his investment in Aorangi could be used to help offset any potential losses.

But the facts purported in the statutory managers report go beyond a simple case of Mr Hubbard making good on any losses.

Take Aorangi’s loan to Te Tua Trust. The loan of $24 million appears to be secured over interest free loans to farmers to give them a “helping hand” in their early years.

The loans are typically repayable in equal instalments of principal over a period of five to seven years, often with an initial repayment holiday.

These loans are likely to be written down to just $9 million, according to the report.

A further $59 million of Aorangi money was invested through 51 loans to 25 dairy farms, many of which are struggling financially.

The statutory managers believe only 17 of the 51 loans and investments will be able to meet their full interest obligations due in September.

A further $23 million was invested in other commercial entities, including $10 million into Southbury Group, a company that Mr Hubbard is the major shareholder.

The remaining $13 million are mainly in first and second mortgages to a range of businesses.

As Grant Thornton notes, the way these investments have been structured is “far from ideal” in terms of how it was presented to investors.

"There is an alarming gap between the income Aorangi is presently receiving from its loans and investments and the amount it needs to pay out to its investors," the report adds.

The situation is unlikely to get any better for investors.

The next update will come from the Serious Fraud Office.

[minimoke]

Take out the property development loans and SCF has been a good financial institution for small Island businesses and companies over the years.

But if there are bits of SCF that look like Aorangi the these business are highly geared, supported by second tier loans with seasonal and fluctuating income and assets which have no or little demand should they need to be liquidated. Add to that capitalised interest on depreciating assets in a market that will recover - but not necessarily quickly. Why should the tax payer be involved. Let them go to the banks for cash and let their financial position speak for itself. If not the banks then head over to Marac or somewhere for the equipment leasing. If these people can't get money from a variety of traditional sources why should th tax payer support their obviously high risk business?

If there is a good book - flog it off and use the cash to repay the tax payer for the Govt Guarantee. Likewise for Helicopters and Scales. Since when should the taxpayer get involved in a helicopter Business - it ain't no Air NZ. If I want a part of Helicopters I''ll buy shares. If I don't why should my elected representatives have a dabble - jeez they can't even flog off the Skyhawks.

Most taxpayers have to be in a sufficiently finacially sound position to borrow money. What makes South Island dairy farmers so special?

[Balance]

But if there are bits of SCF that look like Aorangi the these business are highly geared, supported by second tier loans with seasonal and fluctuating income and assets which have no or little demand should they need to be liquidated. Add to that capitalised interest on depreciating assets in a market that will recover - but not necessarily quickly. Why should the tax payer be involved. Let them go to the banks for cash and let their financial position speak for itself. If not the banks then head over to Marac or somewhere for the equipment leasing. If these people can't get money from a variety of traditional sources why should th tax payer support their obviously high risk business?

If there is a good book - flog it off and use the cash to repay the tax payer for the Govt Guarantee. Likewise for Helicopters and Scales. Since when should the taxpayer get involved in a helicopter Business - it ain't no Air NZ. If I want a part of Helicopters I''ll buy shares. If I don't why should my elected representatives have a dabble - jeez they can't even flog off the Skyhawks.

Most taxpayers have to be in a sufficiently finacially sound position to borrow money. What makes South Island dairy farmers so special?

Minimoke, matey - I agree with your sentiments 100% but it's a question now of limiting the loss to taxpayers.

I believe taxpayers are best served by SCF being owned by the Crown. Like Air NZ, it will be managed by professional managers, not someone from the government.

[Anna Naum]

http://www.nzx.com/news/4067597/SCF-...f-new-investor

[Beagle]

Minimoke / Balance I believe there is a case to be made for the logic in the Govt assisting with what appears might be a forthcoming announcement regarding re-capitalizing SCF. I would speculate an interested party wouldn't want the so called bad bank and part of the process that I've been hinting at for the last while is it could be in the Govt's interests purely from a loss mitigation perspective to assist the execution of a transaction, if they take over the bad bank.

Seems to make sense to me as otherwise they're on the hook good and proper for the whole lot.

[minimoke]

Minimoke, matey - I agree with your sentiments 100% but it's a question now of limiting the loss to taxpayers.

I believe taxpayers are best served by SCF being owned by the Crown. Like Air NZ, it will be managed by professional managers, not someone from the government.

Hasn't Treasury already got around $850m provisioning for net loss under the Deposit Guarantee. National Finance have just taken $130m gross of that . SCF would clearly be a big gross hit - but there is some value in there to reduce the tax payer overall exposure.

[minimoke]

Minimoke / Balance I believe there is a case to be made for the logic in the Govt assisting with what appears might be a forthcoming announcement regarding re-capitalizing SCF.

Suspect that might well be the case - though I'm reminded the Govt wouldn't do it when Fisher and Paykel were in strife.

[Beagle]

Suspect that might well be the case - though I'm reminded the Govt wouldn't do it when Fisher and Paykel were in strife.

I hear you, but clearly in this case the Govt have a "direct and significant" financial incentive to mitigate losses. One might suspect that they want to keep as much of that $850-900m provisioning intact as possible, even though 12 October is'nt that far away i'd be surprised if there wasn't one or two other NBDT's affecting that provisoning before then.

[Alan3285]

Say what you like about the process by which Allan Hubbard, his wife Jean and their associated entities were placed into statutory management but the evidence presented today appears to provide ample justification for the move.

Yet another one who seems to think that the ends justify the means.

I hope that one good thing that comes out of this fisco is that the process around statutory management is made more transparent.

A few people sitting in a 'smokey room' making a decision - one of them whose brother failed to make good on his obligations to SCF and got pinged for it - is not good enough.

Alan.