South Canterbury Finance Limited

[adamcz]

I havent read the SCF deed but i know under other deeds that all funds deposited at the date during the guarantee period are guaranteed unless excluded by the $1m cap, non-resident or non-citizen, related party or a financial institution

[Balance]

The sheer arrogance of this company and its management.


South Canterbury Finance hits back
Christchurch Press
15 June 2009

South Canterbury Finance has become a major topic of conversation in finance circles, with most of the chatter centring on a sharp increase in the company's related- party transactions and its exposure to the ailing dairy sector.

Related-party transactions have been a touchy subject for investors because they have been a common feature of several finance companies which have failed.

South Canterbury is part of Southbury Group, the private investment vehicle of Timaru- based accountant Allan Hubbard.

Its most recent accounts, for the six months to December, show the company had loaned $170.2 million to related parties at balance date, up from $62.2m at June last year.

This included loans totalling $21m to key managers in the Southbury Group at preferential interest rates, including a $15m loan to South Canterbury chief executive Lachie McLeod. They appear to have been used to allow the executives to purchase Southbury shares.

In a complicated shuffling of assets between South Canterbury and various other companies in the Southbury Group, South Canterbury has transferred $89.6m of loans to Southbury and purchased shares in several Southbury subsidiaries, including a $22.5m stake in Scales Corp and Commtest Instruments and $20m of preference shares in Helicopters NZ.

However, the biggest related- party transaction was a post balance-date deal for South Canterbury to buy what are described as "various farming properties", from an unnamed related party for $67.2m.

The size of this transaction at a time when the value of many rural assets is in freefall, and the fact that no further details of the deal are provided is a concern because it is equivalent to nearly 27% of the company's equity.

McLeod dismissed concerns over these arrangements as "great bloody gossip from The Viaduct".

"I think a lot of it is to do with the [dairy] payout drop. We've only got $45m in dairy loans, but everyone thinks we've got hundreds of millions," he said.

As for the related-party transactions, McLeod said South Canterbury had been involved with some of the other companies in the Southbury Group for more than 50 years.

"Some of our related-party lending is the best lending we know," he said.

"It's all about keeping the equity up and increasing the equity side of it. And everything we do, we talk very closely with our auditors [Timaru-based accounting firm Woodnorth Myers], our trustee [Trustees Executors] and of course now we've got a new partner called Treasury [monitoring the Deposit Guarantee Scheme]."

[COLIN]

IMHO this emphasises the need to regularly review one's holdings, asking things like: if we didnt already hold this one would we buy it today?

I have isolated your above comment, Sharer, because I agree wholeheartedly with it and believe it needs to be stressed. I am trying to adopt this approach increasingly, but it requires a steel will.

As regards SCF: I have no fears whatever regarding my exposure, and in fact have added to it in recent days, at true bargain prices. If PGC can come up with an underwritten ordinary share issue to the extent of $270m then I am certain that Alan Hubbard will be well on the way to piecing together a plan which will place SCF on at least a similar footing. And remember that, unlike PGC, the only listed securities of SCF, i.e. the bonds and the pref shares, all take priority to the ordinary shareholders.

It seems to me that a lot of the commentary on this thread has come from people who have little knowledge of how South Island Incorporated works - its definitely not "white shoes and super yachts" down here! If you want an example of fierce loyalty/parochialism, just study SBS. I also suggest people have a look at www.chrislee.co.nz - I know that Chris has his critics, but he has a far better understanding of SCF and Alan Hubbard's business ethics than most North Island based financial commentators.

(By the way, it should be noted that the article from The Press, posted by Balance, is dated 25 June - hardly hot news.)

[Balance]

I have isolated your above comment, Sharer, because I agree wholeheartedly with it and believe it needs to be stressed. I am trying to adopt this approach increasingly, but it requires a steel will.

As regards SCF: I have no fears whatever regarding my exposure, and in fact have added to it in recent days, at true bargain prices. If PGC can come up with an underwritten ordinary share issue to the extent of $270m then I am certain that Alan Hubbard will be well on the way to piecing together a plan which will place SCF on at least a similar footing. And remember that, unlike PGC, the only listed securities of SCF, i.e. the bonds and the pref shares, all take priority to the ordinary shareholders.

It seems to me that a lot of the commentary on this thread has come from people who have little knowledge of how South Island Incorporated works - its definitely not "white shoes and super yachts" down here! If you want an example of fierce loyalty/parochialism, just study SBS. I also suggest people have a look at www.chrislee.co.nz - I know that Chris has his critics, but he has a far better understanding of SCF and Alan Hubbard's business ethics than most North Island based financial commentators.

(By the way, it should be noted that the article from The Press, posted by Balance, is dated 25 June - hardly hot news.)

You miss the point of posting the 25 June article - this was before the S&P downgrades. A big reason for the downgrades was the increasing level of related party transactions. SCF arrogantly defended its related party transactions.

South Island Incorporated? SCF has been operated like a private investment company.

As for Chris Lee, he is so insightful he has his clients in finance companies like Hanover, St Laurence, Strategic Finance, etc. He certainly knows how to read that sector well.

[Balance]

This article in the Sunday Star Times gives a good insight into the advice given on finance companies by Chris Lee. Have a read of this :

http://www.stuff.co.nz/business/pers...-and-adversity

Excerpts :

"In March 2006 Lee invested the Lindsays' money in Hanover Capital, but in October the next year he withdrew support for the company and wrote in his public blog: "Mark Hotchin and Eric Watson are not bankers, and not the sort of people one would regard as low-risk conservatives." Good one.

"In a letter to the couple in early February, Lee said: "Never did I make your decisions. Not once have I contacted you, or any client seeking to persuade you to invest money in anything. Never have I invested your money for you. You invested your money." Another good one.





Advice and adversity
By ROB STOCK - Sunday Star Times

"It appears to be a collection of investments without any structure, and looks more like something from a DIY investor, rather than one put together by an investment professional."

That's the opinion of senior Spicers' financial planner Jeff Matthews on a portfolio created for retired Southland farmers Clare and John Lindsay on the advice of high-profile Kapiti Coast adviser Chris Lee.

In an assessment paid for by the Lindsays in a bid to get Lee to compensate them for losses, Matthews said: "It is pretty obvious you have a poorly constructed portfolio, which has exposed you to considerable capital loss from investments that should be considered safe.

"A well-constructed bond portfolio should give investors peace of mind and a regular income, and you have neither."

And peace of mind is what the Lindsays say they were after, saying they told Lee when they first contacted him back in 2005 that they considered themselves conservative investors, though they have no written proof of that, and Lee says he does not keep records of clients' risk profiles.

But the Lindsays have been left holding virtually worthless Babcock & Brown subordinated notes, as well as capital notes in St Laurence (in moratorium), debentures in Dorchester Finance (in moratorium), Hanover Capital preference shares (in moratorium), debentures in North South Finance (in moratorium) and two tranches of debentures in Strategic Finance (in moratorium).

The couple said they were private people and asked for the sums involved to be kept confidential, but felt they needed to tell their story because they were infuriated to see Lee continually quoted in the media and criticising others when they feel so badly let down.

"You read his blogs and feel he's a really good guy that is there for the investors, but we feel that is just an illusion," said Clare Lindsay.

Around 60% of their portfolio was in finance companies. Around 30% was in investments with either no rating from a respected international ratings agency, or a rating below investment grade.

Nine of the 18 non-cash investments in their portfolio are in serious trouble, with another bonds in Nufarm trading at a discount to face value.

Missing, noted Matthews, were the large weightings of highly rated, liquid corporate bonds and government stock which would usually underpin a portfolio for conservative investors.

The result has been a big drop in the Lindsays' income.

Lee said that although he sympathised with investors who had lost money, financial markets deteriorated further and faster than anyone forecast. That badly affected and in some cases destroyed reputable organisations that were previously well thought of.

"No financial strategy, other than to buy government stock and use bank deposits only, has been successful," he wrote to the Lindsays earlier this year.

Ad Feedback Clare Lindsay said the couple felt they had been naive. They feel they handed over the management of their retirement nest eggs too casually something they would not have done with the management of their farm.

They have not ruled out legal action, but feel they are not wealthy enough to risk more on a court battle for compensation.

The Lindsays have asked Lee to buy back the investments they say were never suitable for them Hanover Capital preference shares and St Laurence capital notes, both of which are lower ranking than debentures as well as their investments in Strategic Finance, made in late 2007, when they say Lee should have realised there were high risks around the company.

Lee has told the couple he will not do so.

The couple also feel betrayed by Lee's public criticism of companies he had advised them to invest in.

In March 2006 Lee invested the Lindsays' money in Hanover Capital, but in October the next year he withdrew support for the company and wrote in his public blog: "Mark Hotchin and Eric Watson are not bankers, and not the sort of people one would regard as low-risk conservatives."

Lee told the Sunday Star-Times he could understand the criticism, but said his outspoken stances and advice to finance companies had been heeded in cases which had helped preserve the company. He declined to say which firms had been so preserved.

Lee said: "They want to put their side of the story to you, which is their right. It is not something I would do, but I guess it is their choice.

"I won't comment on them individually, but I do accept we are in very stressful times, and that people have every reason to be outraged by losses they have and anyone who has lost 10% of their money would be outraged, but most of the country that have invested money would have lost more.

"The reality is we haven't got everything right, but we have been a little bit more right than wrong."

He estimated that about 12% of $1.2 billion in clients' money was in frozen finance companies, the bulk in Strategic and St Laurence. The outcome for investors in those is uncertain.

The Lindsays say that when they went to Lee in 2005, they thought they were taking on an adviser who would build a portfolio for them. The only difference to other advisers was that they would manage their own paperwork.

Lee said his firm did not work like that. It did offer advice, but as a sharebroker with around 10,000 clients, it did not take responsibility for clients' portfolios. Instead, advice was given when sought on individual securities, and free consultations given on portfolios, Lee said.

"We can't and don't run portfolios for people. We don't charge them fees [Lee is a commission-only adviser] or sit down with people in Auckland."

And at the end of the day, investors were making their own decisions.

In a letter to the couple in early February, Lee said: "Never did I make your decisions. Not once have I contacted you, or any client seeking to persuade you to invest money in anything. Never have I invested your money for you. You invested your money."

Clients are contacted through email alerts, but it is they who pick up the phone and ask whether new issues are suitable for them, or what they should do when an investment they have matures, he said.

In one letter to the Lindsays, Lee does appear to acknowledge that the couple were concerned over risk, saying he believed they expressed their needs as "being above bank rate interest on your capital with as little risk as possible", reflecting their retirement and decision to defer buying a house.

Lee famously offered to compensate clients he had advised to invest in Provincial Finance, which was the first finance company to collapse, back in 2006.

But Lee said that was because he could see that there had been flaws in his researching of the company. It should not be interpreted as an offer to make up for any losses resulting from advice his firm gave, he said.

[COLIN]

Balance: As I said, Chris Lee does have his critics. But back in 2005/6 there would have been very, very, few financial advisers - if any - who weren't suggesting some or all of the finance companies mentioned in the ST story, to clients who wanted fixed interest investments that paid better than bank deposits, and didn't want anything to do with shares.

Chris Lee was, in fact, one of the first advisers to start raising alarm bells about what was happening at the lower end of the finance company industry, such as Bridgecorp, Capital & Merchant, Lombard, MFS, etc., etc., and he came in for a great deal of personal abuse for his trouble, at a time when the vast majority of the "advisory industry" were acting as if there was nothing to fear.

At the end of the day, people are responsible for their own investment decisions - just as I am responsible for the decision I have made to run with SCF, at the heavily discounted prices at present available. I have been an investor for more decades than I care to count and, although I would not class myself as a "high risk type", I regard myself as having been reasonably successful overall. My portfolio is well spread - indeed quite "balanced!" As I am sure you are fully aware, all investments carry various degrees of risk, even Government Stock. Your nom-de-plume would suggest that you have a more conservative approach to constructing your portfolio - that's fair enough, and everyone should only assume the degree of risk they feel comfortable with. I wish you well (I'm not being sarcastic, believe me) and lets both enjoy the ride.

[Balance]

Balance: As I said, Chris Lee does have his critics. But back in 2005/6 there would have been very, very, few financial advisers - if any - who weren't suggesting some or all of the finance companies mentioned in the ST story, to clients who wanted fixed interest investments that paid better than bank deposits, and didn't want anything to do with shares.

Chris Lee was, in fact, one of the first advisers to start raising alarm bells about what was happening at the lower end of the finance company industry, such as Bridgecorp, Capital & Merchant, Lombard, MFS, etc., etc., and he came in for a great deal of personal abuse for his trouble, at a time when the vast majority of the "advisory industry" were acting as if there was nothing to fear.

At the end of the day, people are responsible for their own investment decisions - just as I am responsible for the decision I have made to run with SCF, at the heavily discounted prices at present available. I have been an investor for more decades than I care to count and, although I would not class myself as a "high risk type", I regard myself as having been reasonably successful overall. My portfolio is well spread - indeed quite "balanced!" As I am sure you are fully aware, all investments carry various degrees of risk, even Government Stock. Your nom-de-plume would suggest that you have a more conservative approach to constructing your portfolio - that's fair enough, and everyone should only assume the degree of risk they feel comfortable with. I wish you well (I'm not being sarcastic, believe me) and lets both enjoy the ride.

Yes - there were many others who spoke up against the finance companies. Some like Bruce Sheppard told investors to steer clear. Some just don't take the high profile that Chris and Bruce did. They just told investors to avoid finance companies altogether.

Another indication of how well Chris knows the finance companies :

"On January 30, I meet with Mark Hotchin, co-owner of Hanover Finance, to hear of his plans for 2008. This will be a key meeting for me. Hanover has a number of choices to make to maintain its faultless relationship with its debenture and capital note investors, and Hotchin has the power to call the shots.

One important move he is likely to be considering is to strengthen the HFL Board with some banking skills, something that any finance company aspiring to an acceptable credit rating would want to have.

The critics of Hanover focus on its related party lending, its high level of no-cash flow lending, and its focus on short-term deposits.

But to be balanced, they need to acknowledge its continued high levels of profitability, its remarkably low levels of bad debt, and its unblemised record in administering its investment registry."

I rest my case.

[winner69]

That is very very mean of you Balance -- but funny as

You know that all related party lending is profitable - but only on paper

[Balance]

That is very very mean of you Balance -- but funny as

You know that all related party lending is profitable - but only on paper

Mean?

Mean is giving advice and then, telling those who pay you a commission that they are responsible for their own investments!!!!!!

Then, rubbing salt into their wounds by bad-mouthing the very same finance companies the poor sods were recommended into putting their funds into - when the finance companies went broke!

[COLIN]

Mean?

Mean is giving advice and then, telling those who pay you a commission that they are responsible for their own investments!!!!!!

Then, rubbing salt into their wounds by bad-mouthing the very same finance companies the poor sods were recommended into putting their funds into - when the finance companies went broke!

Well, hope you're feeling better after having got that off your chest!

I don't want to give you any further excuse for another vitriolic outburst, but if you are referring to the "Lindsay case" I notice that Lee made it quite clear that he derived NO commission from them - or, it appears, from any others of his clients - and that in fact they arranged all their own investments direct.

Like you, I decry the reprehensible actions of many so-called "financial advisers" who have unconscionably led little old widows and orphans into totally unbalanced portfolios of totally rubbish investments. However, I do not place Chris Lee in that category. In saying that, I must admit that I would never have gone anywhere near the Eric Watson Hanover outfit, and I used to get annoyed at hearing Richard Long on that infuriating advt, but we all make mistakes - perhaps even you, if you could bring yourself to admit it.

Its easy to be a constant knocker - what about sharing a few positive statements about something that takes your fancy, sometime. Don't be shy!

Hope you're having a good day. I am.