Curious, I am. What are the scenarios ? Possibly means I'm ignorant as well as curious.
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No you havn't missed anything. Only completly delusional idiots think they will go back to a dollar. Fact is the terms of these PERPETUAL shares which were issued at a time when the margin over interbank swap rates was at an all time low, are woefully inadequate for the new economic environment we operate in today.
Enumerate and others invested in these type of instruments would do well to consider what would be an appropriare return for a non-voting perpetual preference share in the new operating environment of non-guaranteed debenture deposits post December 2011.
I would suggest on a risk adjusted basis the margin over 10 year interbank swap rate should be at least 9% not the woefully pathetic 2% the current shares offer. The implied yield would thus be 9% + current swap rate for ten year about 4.5 % = 13.5% required rate of return.
With a current return of 5.61% and an apparent protracted period of extremly low interest rates one could conculde that for the perpetual shares to offer a fair yield they would have to trade at 5.61/13.5 = 41.5 cents on the dollar and that's ONLY IF virtually all uncertainty regarding SCF is removed by some extremly complicated deal this week.
Unfortunatly many bloggers appear to be unsure of the methodology of the fundamental analysis of acceptable current market yields and their effect on the capital value of perpetual debt instruments which I have described above. I have suggested for some time that the odds when you buy in at 15 cents or thereabouts are simply not as attractive as they look as the absolute maximum possible realistic return is about three times your money. This is simply because in the new GFC environment which we currently operate, the market will demand such a return, in my opinion, especially for a finance company perpetual share.
Your analysis is quite correct Roger but those who took a punt on the prefs at 15 cents odd didn't do it for the yield .... like has been outlined a total recapitalsiation of SCF by somebody other than Southbury could/would result in the prefs being repaid in full
Than again come Tuesday and they might be worthless.
Thanks Roger,
Not sure that I agree with your "...apparent protracted period of extremly low interest rates..." scenario, but that's a different subject.
Thanks for the reply.
Winner 69 I'm picking they're worthless, which is why I havn't bought any.
GTM3442 - For what its worth I'm in the double-dip camp and believe that central banks world-wide will need to keep interest rates at historic lows for years to come.
The Treasury carry on around the Gvt Guarantee not covering trusts managed by professional trustees or trusts/estates where any beneficiary is overseas could have a few ramifications here
I would hazard a guess that a lot of the so called rich SI money is in these sprt of vehicles
Maybe a quick payout under the scheme won't happen for many
Good old Mick Hoskings guts eh .... after listening to Carruthers he is now convinced this is an injustice or something ... and tells us so ad nausem
whats overlooked is taht hubbards empire was unravelling a couple of years ago but the govt guarantee kept the money go round turning for a few more years ... and it still irks me that a company that essentially self destructed is bailed out by the taxpayer
Alan may have had a great business for decades but at the end of the day he will be remembered for other things
Any thoughts on how secure funding for Marac and UDC will be without debenture holders post GG?
Seems to me that there have been a lot of funds found their way into Marac/UDC which will be reluctant to go back there post guarantee on any terms. SCF failing now probably final nail in coffin for any confidence from debenture holders. I haven't looked closely enough at these to know whether they are likely to have sufficient funding without debenture deposits.
Also expect a gathering wave of money coming out of these and looking for a new home - maybe in bank TD's but where else? Listed and unlisted bank bonds - though already yields are getting quite low on these and investors needing to pay above face value on many.
Presumably Forsyth Barr managed funds will have some SCF exposure - unless the clever money exited a while back. The Govt already had $887m provisioning and realistically most of this has to be tagged for SCF. I can't see why it would want to take on the Bad Bank and loose the benefit of the assets in the Good Bank. I'm still swinging it will be a receivership.
As an aside, will the potential new owners (and their depositors) still have coverage under the Deposit Guarantee?
Coming back to the Deposit Guarantee. If there is a default event and the Govt pays out - where do they stand in hte line to get money back. Are tehy infornt of or behind Torchlight?
I can't be certain - I guess you'd have to read the GGS stuff on the Treasury website - but I believe Treasury effectively just step into whatever position the people they pay out had before.
I would imagine therefore, behind Torchlight, ahead of bond holders, unsecured creditors, pref shareholders, and ord shareholders.
Don't rely on my memory though (I don't!)
Alan.
Update out.
Quote:
Market announcement by South Canterbury Finance Limited
30 August 2010
Market Update by South Canterbury Finance Limited
South Canterbury Finance announced today that it is still in discussions with interested parties in an endeavour to put together a recapitalisation and restructuring solution acceptable to all stakeholders. In view of recent media speculation, the Company also announced that there can be no certainty that the proposals it has been pursuing will be successfully implemented. The Company expects to be in a position to make an announcement to the market on Tuesday 31 August.
GENERAL
Market announcement by South Canterbury Finance Limited
30 August 2010
Market Update by South Canterbury Finance Limited
South Canterbury Finance announced today that it is still in discussions with interested parties in an endeavour to put together a recapitalisation and restructuring solution acceptable to all stakeholders. In view of recent media speculation, the Company also announced that there can be no certainty that the proposals it has been pursuing will be successfully implemented. The Company expects to be in a position to make an announcement to the market on Tuesday 31 August.
Ends
First time Sandy hasn't been totally positive