Old Alan Hubbard, he went to his cupboard.
To offer his farmer friends a loan.
When he got there, the cupboard was bare.
So they were marched off their lands, with a groan.
Surely Bermuda, it hasn't come to *t h i s*
SNOOPY
Printable View
Greetings bermuda :)
My info suggest "tenuous times " for SCF but not Belly up Stuff.
Bitting the bullet stuff for the shareholder(s).
South Canterbury is much like the Southland mentality... A large
number of Do'er old buggers who will stick with things regardless.
Southland Savings Bank an example.
There is a lot of money stashed away in them's there plains.
(Blockhead will tell you)
I have some dosh in with them, comes due next year. So will be
under John'y Smirf's umbrella.
A man said " Could the Govt let them go broke ???" Interesting
thought......
Cheers old Son
BB :):)
Intersting how the govt guarantee affects pricing of SCF bonds/notes
Those maturing before the guarantee end date yielding 7% but the 2011 ones are at 14% and the 2013 ones at 16/17%
Probably how the market sees the risk which could make it interesting if they go after more market money soon .... but suppose 10% and recomendations from the likes of Lee and others would get them over the line
Are those Perpetual Preference Shares government guaranteed?
I would also like to know what effect the Govt guarantee scheme has on these, if any.
Unfortunately on IPO i reccomended them to a charitable trust i'm on, & recall we were told they were considered safer than govt stock at the time! Both we, & our advisor, assumed they were like bonds, didn't realise they apparently are just pref shares.
Hmmmm high interest high risk
Zero Risk?? No such thing. Ever tried lodging a largish insurance claim , and seen a sudden loophole or force majuere or disclaimer appear? The Govt gaurantee is only as good as the reasonable disclosure of the companies state of affairs at the time they entered the scheme. If this was in any way 'fudged' then the Govt has their 'out'. Hence perhaps the near-term 'gauranteed' bonds 'gapping up' today?
M
Totally agree Misc, its all in the fine print & no one reads it, cos they look silly if they do.
I had income protection insurance, with a 2 year no claim waiver for ALL pre-existing conditions.
I tried to claim in year 3 (or 4?) & guess what... :(
If your facing higher risk you really do need a much higher reward to compensate, & again i agree the Govt will have the lawyers ready to back out.
Would be a shame to see SCF go down (if it does) i thought it prided itself on not lending money to property sharks :rolleyes:
Shasta , yes would be a real shame if it folded , but reminds me of the 'once proud' NZI that got caught up in the reckless lending spree of 1986/7 and nearly bought it to its knees , no institution escaped the 1987 meltdown intact , and this time round its far worse imo , so at very least SCF will have to write off hundreds of mills of bad debt and can really only be saved by the Govt , if they chose to do so. Hard to fathom why Hubbard took his hand off the rudder here. I can see the only finance companies enduring being those bank owned entities like Marac et al , which can only harm the property sector and the economy in the next year or 3.
M
And watch the political mayhem if the Govt backed out of their guarantee- regardless of the fine print, and especially SCF. Not to mention the implications for the Australia Govt guarantee as well. No, the tax payer is firmly behind SCF and besides, the outfit isn't actually in dire financial trouble anyway.
certainly showing some familiar symptoms....for a finance coy...thats not in trouble!
Gidday
Let's look at some other issues.
Recently there was consensus that there was only two rock solid finance co's Marac & SCF.
Long successful history.
Main man the richest south islander est $650 mill.
Not quick,showy boomtime money. A conservative gentleman, similar to Warren Buffett.
Talk of a possible one notch downgrade sends you guys into a "the sky is falling" mode.
IMHO there won't be a problem. Time only will tell.
Good to see a dose of realism being brought to bear, at last! I have watched all the reef fish darting towards the shallows while I shake my head in disbelief. It can only be non-Mainlanders who believe that SCF "is going down." And, believe me, I would have to be one of the most sceptical when it comes to assessing the viability of the non-banking sector - SCF is miles removed from your Hanovers, Bridgecorps, et al.
But all this hysteria has provided me with some wonderful buying opportunities in SCF. Thank you.
(By the way, Marac is NOT bank-owned, as someone has claimed in an earlier post. It is owned by PGC, who have been talking about getting a banking licence but I would suggest that they might have other pre-occupations right now, the way PGG is looking.)
To clarify on a point made a few days ago regarding lack of disclosure on related party lending etc, does listing debt securities require a lower level of on-going disclosure than listing equity securities?
Both markets are run by NZX, so I would have thought the same rules apply?
Gidday
No disrespect to sharer only a 2 year newbee, I was scanning the left hand margin to see how long we have been kicking around, I've been here for seven years OMG! & even before that on the previous format,
COLIN here for 9.5 years !!
Hope you are all well & doesn't time fly when you are having fun?
heck the guy is over 80 apparently .... prob still sahrp as .....
correct! And still drives his 35 year old VW to work every day.
Gee, is it as long as that. Yes, I do have grey hair, but unfortunately that doesn't always guarantee respect these days! And I'm not quite as old (or as investment-savvy) as Alan Hubbard.
Someone asked whether the perpetuals were Govt-guaranteed; the answer is "no". The company can also suspend the dividend payments on these, but I would be very surprised to see them do this as such action would badly shake the confidence of their thousands of loyal investors, something that AH would do everything in his power to avoid.
I have actually been "putting my money where my mouth is" and buying the prefs lately - the current severely-depressed price levels are just too tempting to bypass. What has to be remembered is that AH would lose every cent of his ordinary equity in the company (and he owns by far the majority of the Southbury shares) before the preference shareholders lose a bean.
I don't think it is beyond the realms of possibility that some tie-up between SCF/PGC/Marac/PGW will emerge over the coming months. Hubbard came to the aid of Norgate, gaining a foothold in PGW for his "generosity", but I believe there is a longer game in all this. Norgate has his back to the wall; the market's sensing of this is reflected in the slump in the PGW shareprice; and PGC has to deal with its PGW involvement before the way can be cleared for it to obtain a banking licence for Marac. Put all this into the pot, add any other seasonal morsels you can find, stir until an even consistency is achieved, and simmer for 6 months!
And also don't be surprised if SCF preference shareholders are offered the opportunity to convert to ordinary capital, as part of an overall restructure. Remember, this was a course that SCF were comtemplating two or three years ago when they were considering an IPO of ordinary shares, but they pulled back. Given that AH has now accumulated a few more years and thus succession planning becomes even more to the fore, and given that original investors in the public pref issue have seen a 60% decline in the market value of their outlay, I feel reasonably confident that he would be thinking along these lines.
I am also of the view that an AH underwrite of SCF losses would be of greater strength than the recent PGC underwrite of Marac's losses.
The old saying: "Necessity is the mother of invention" springs to mind.
UDC (ANZ-owned) MARAC and SCF are the only Finance Companies of any substance left in NZ, with BBB- investment- grade ratings or above. Both MARAC and SCF are under pressure from severe impairment of loan assets. Of these two I suggest that SCF is the stronger one. PGC is aiming to get a banking licence for MARAC but that quest must be an uphill road at the moment, not the least difficulty being the requirement for PGC to dispose of its PGW shareholding. And rationalisation would clearly require the injection of outside capital.
All I am saying is: "Watch this space."
The 'play' here would be to borrow SCFHA stock and short the bejesus out of it ... there will be other 'Colins' around who are blindly buying the stock imo.
There is a massive dilution coming , at best!
Misc
I don't think you could get two operations more dissimilar than SCF and Hanover.
The former is, as Contrarian says, a long established conservative firm with a long history of profitable trading with a "main man" who is eveything that EW isn't.
They seem to have overstretched themselves a bit in property lending but I'm picking that they have the financial strength to see them through. Might have to follow Colin in having a closer look at the pref shares.
;)
Can anyone enlighten us as to how much of Hubbard's wealth is represented by his shareholding in SCF?
I recall a few years ago that part of SCF was going to be floated and it represented half of his net worth.
Point is that SCF now needs money from Hubbard rather than the other way round.
NZX site a bit confusing but look at the value of the trades and it becpmes clear that it is 37.5 cents per share ... like today 3 trades $15,750 for 42,000 units (shares)
Pretty cheap eh ... if people on here are going to stock up on these the proce will go up eh
Alot of investors are going to lose alot of money here. The signs are on the wall, yet we hear nothing from the NZSE. What will the NZX do to safeguard investors?
Yield is 'reset' each 1st Oct. Currently 9.42% but will drop to 4.8% or so this Oct. The % yield is based on the $1 issue price NOT the market price (37.5c today).
The company does have the option of suspending payments at any time Im told.
http://www.nzx.com/markets/NZDX/SCFH...ements/4712504
Misc
Yep Misc ... prospectus says 'Although it is the Company's current intention that Dividends be paid ......... it has the right to cancel the payment of Dividends .... at any time .....the payment of dividends .... is not promised or guaranteed'
Reason for cancelling dividend is payment of such would cause the Company to become insolvent or break banking convenants .... or for any other reason determined by the Board
Come October 1 rate reset to 5% -6% (ie 5 cents) still good return on todays price of 37.5 cents
SCF related-party lending faces severe prune under draft rules
South Canterbury Finance (SCF), the finance group whose investment-grade credit rating is being supported by its biggest shareholder, would face a severe pruning of related-party lending under the central bank's draft rules for non-bank deposit takers.
The draft, put out for submission in December, proposes capping aggregate exposure for NBDTs at 15% of Tier 1 capital. That would require SCF to reduce related party lending to just $14 million from $170 million, according to Forsyth Barr analyst Luke Angus.
Based on the firm's accounts for the first half ended December 31, related party lending soared 165% from six months earlier, with the biggest gain to parent Southbury Group, founder Allan Hubbard's investment arm.
SCF announced a $58 million impairment on non-performing investments and doubtful property assets for the year ended June 30, resulting in a loss before tax of $37 million. Hubbard is injecting $40 million of new capital into SCF and is finalising an underwrite agreement to cover any further impaired loans.
Hubbard is regarded as a key strength for SCF, as evidenced by Southbury's decision to acquire $89.6 million of loans from the firm in the first half. Still, Forsyth Barr's Angus said related party lending "needs to be significantly reduced."
"We generally view related party lending as a negative from a credit risk perspective due to the lack of independence," he said.
SCF's total equity at June 30 was $236 million, made up of $120 million of preference shares and $116 million attributable to Southbury, according to the report.
Hubbard is "a strong and supportive shareholder, though there is a limit to the owner's ability it support SC," Angus said. "We also believe a succession plan would provide additional comfort, given the reliance on an individual shareholder."
Hubbard, reportedly 80 years old, is chairman of SCF and one of four directors.
Standard & Poor's last week affirmed SCF's BBB- credit rating, which it placed on Creditwatch negative. That means there is a one-in-two chance the firm will lose its investment grade rating in the next three months, which may place further strain on its balance sheet.
S&P credit analyst Derryl D'silva cited SCF's decision "to shift its holdings of liquid assets from cash to higher risk and high-yield investments has increased the risk profile of the company and weakened its liquidity."
Under the terms of its $125.2 million US private placement, a credit rating downgrade could trigger a repayment demand.
SCF chief executive Lachie McLeod this month said the company is considering external sources of new equity to strengthen the company's position over the next six months.
Submissions on the central bank's draft rules closed in February and work is continuing on the final version, according to spokesman Mike Hannah.
Misc ... that could make life a bit difficult
Interesting looking at the movements in the balance sheet from June 08 to Dec 08.
- Advances went up by $160m (good for a growth company) but $106m of the increase was to related parties. So advances to other parties (the reason they are in business I would have thought) only went up $54m (4%)
- Share/investments went up $56m the bulk of which was a new categorisation called 'Held to maturity Assets' which was a nice round $48m (exactly $48m).
- Property Plant went up $50m odd - so buying a lot of tangible stuff which isn't always the job of a financial company Total PPE nw double what it was it was a year prior
All this funded by a reduction in cash of $80m and added borrowings of $200m
Like to know what these assets held to maturity are as well why the sudden surge in buying property/plant.
The last 6 months of last year did see significant movements in related party tranasctions, particularly relative to other lending
Be interesting to see the full year accounts to June 09 to see whats happened in the last six months ... but as gaynor pointed out not always easy to track movements with different categorisations popping up now and again
Resets trading at 37.5c - SCF should be buying them back as it is impossible to lend or invest in anything else offering such spectacular returns?
Biggest vote of confidence will be SCF or Hubbard offering to buy them back.
Warning way back in 2005 - credit where credit is due.Quote:
Originally Posted by ;69928
'Advances went up by $160m (good for a growth company) but $106m of the increase was to related parties. So advances to other parties (the reason they are in business I would have thought) only went up $54m (4%'.....
when did the govt guarantee kick in?
October 12th 2008
Suppose Hubbard/Southbury can afford to prop up SCF .... they've taken $57m in dividends out the last 2 years .... best part of $100m in the last 4 years and leaving a small amount as retained earnings
Not too bad for a $45m investment topped up with another $25m in F2008
The poor old perpetual preference shareholders (who probably didn't know they were buying equity anyway) have $120m invested and over the last 2 years they have only got $15m of the profits
Good on AH making the most of this money machine
You still considering buying some prefs Winner69?? LOL .. looking more and more like Hanovers 'big brother here' .. doesnt it??
Misc
Chris Lee, the Kapiti Coast stockbroker, reckons SCF is okay and market does not understand how strong SCF and AH are. Reckons advisors telling their clients to sell out of SCF's bonds have questionable judgement.
http://www.chrislee.co.nz/index.php?...July&year=2009
Cris Lee is probably right although he has been known to make mistakes, like all of us!
If I held the pref shares I wouldn't be selling at these prices but I won't be buying either. There's enough excitement in buying equities without also taking high risks with fixed interest investments, especially ones as opaque as SCF seem to be.
There was an interview with AH in the Independent this week in which he touched on some of the related party lending.
Any finance firm with related party lending is a SELL in my books.
The Govt Gaurantee is 'goneski' for SCF by October by the look unless they can reduce related party lending to under $15m (based on previous posted article). That would have the effect of collapsing Southbury , as despite SCF saying the related party lending is 'some of their best lending' , its unlikely other lenders would see it that way. Perfect Storm for Alan Hubbard??
Misc
Misc ... those loans to Ellis look a bit of a mess eh
Interesting they seem to have caught up with a few woeful hawkes bay developments ... is that the Kelt connection going a bit of track
Winner , the Kelt book is likely badly impaired for the simple reason that Kelt Capital (owned 100% by Sam Kelt) competes with Kelt Finance (75% SCF). So you could imagine which entity gets the 'good loans' and which gets the 'others' . A massive conflict for Kelt and a deal that raised a few eyebrows at the time , very 'unHubbard' to deal with glitterati wide boys with anger management issues?
The recievership of Satuit Properties Ltd in Napier (SCF owed $15m) is another Bay deal gone bad. 1st recievers report states recovery factor 'unknown'. This type of situation will rife in the lending book , most developers have now flown the white flag.
How is it that Chris Lee et al cannot perform this simple due diligence prior to 'advising' grannys on their nest eggs??
Misc
Sam Kelt and Allan Hubbard would be complete opposites and a strange combination to do business together
Sam Kelt and Eric Watson seem to have a lot in common .... race horses, sponsoring sports teams, glitzy night outs, posh functions and all that ... except that Eric does seem to win the physical encounters he gets into unlike Sam (esp against boy racers) ..... couldn't even imagine Alan H ever getting into trouble
maybe Mcleod got on OK with the kelts
It might be soon if a few more read this thread and decide they want their money out!
Then speculation/rumour/made up facts all become true!
Which would be sad Jay as in the past (going back from before 2006 ) SCF has been the back bone of many a fledging S I business and without it many a small business wouldnt have gotten off the ground, lets not all put the boot in here, this is / was a good finance house not the spivvy Auckland types, Nathans,et al.
My tounge was firnly in my cheek whatsup.
However I agree, it would be sad.
Just some seem to be talking of it as a foregone conclusion
Looks like PGC is going it alone - well, at this stage, anyway, although today's announcement did make mention of Kerr's asset management vehicles expanding into acquiring other assets in addition to MARAC's toxic property development related debts.
SCF will probably have to come up with its own "Bad Bank" solution, into which it can quarantine its own toxic waste.
Director Borland on his way out ... hope he repays the $5m rerlated party loan
Hey this could be the strategy to reduce related party loans .... get those involved to resign .... and hey presto not related party anymore
Just being cynical
LATER ON
Sorry guys ... got the story wrong ... Borland has resigned from Southbury Group and not SCF. He was never a director of SCF
Where did you read that Winner69?? No release to the NZX that I can see.
don't tell me...first name Al..?
At 10% interest Lachie McLeods interest (alone) bill is $1.5m p.a ... how does he pay that ?? Or do one of Colins '1st 4 ships funds' sponsor him?
And what of the Kelt Finance Fiji fiasco??
Misc
SCF has to become totally transparent to regain market support. The dance of the seven veils so far of selective disclosure simply will not do.
Mis, Some of the finance co's in the past collatolorise the interest depending on several circumstances, security, loan comfort,relationship,industry and your eventual ability to pay ( job security).
Warning for finance companies
4:00AM Saturday Aug 01, 2009
By Dene Mackenzie
Bill English says firms must meet new standards to be part of guarantee scheme.
Finance Minister Bill English yesterday warned finance companies to sort themselves out as he considers what to do with the retail deposit guarantee scheme.
The scheme, introduced by the previous Labour-led Government during last year's election campaign, is set to run out in October 2010.
The opt-in scheme covers all retail deposits of participating New Zealand-registered banks and retail deposits by locals in non-bank deposit-taking entities. This includes building societies, credit unions and deposit-taking finance companies.
The deposit guarantee scheme does not include related party liabilities.
In an interview yesterday, English indicated he was considering what would happen to the scheme after October next year, particularly in how it affected the non-bank deposit takers, such as finance companies.
"They are keen to know what we are considering. They tell me people are putting money into them until the end of September 2010. That build-up could all disappear after that."
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The choices for English were: stopping the scheme, extending it, or lining it up with Australia - which was particularly important for New Zealand banks.
Reserve Bank of Australia Governor Glenn Stevens said this week that it would soon be time for banks in Australia and abroad to begin borrowing funds in wholesale markets without the backing of government guarantees.
"I think it will soon be time for banks everywhere, including here, to borrow in their own right," he said.
He noted banks would soon need to reduce their reliance on government guarantees to support fund-raising activity in wholesale credit markets.
"It would make sense for Australian banks, which have accounted for 10 per cent of global issuance of government guaranteed bank debt over the past nine months, to step up their efforts to do so," he said.
English said the wholesale guarantee scheme in New Zealand was taken on an issue-by-issue basis and he expected the scheme to wind itself down as banks started borrowing offshore on their own records.
However, the retail scheme would change. The Government wanted to minimise its losses. At present, if an institution got into trouble, the taxpayers picked up the tab.
The Government also wanted to ensure the system did not become unstable as the stability of New Zealand's financial system had been an advantage.
Now, everyone had to take a guess at what the asset values were backing up a finance company, he said. The kinds of assets behind those companies were not easily traded in these times.
As the economic recovery started, those asset values could increase, making it easier for deals.
But one thing he could guarantee was that whether the scheme ended or changed, things would be more challenging for finance companies wanting to be part of the guarantee, English said.
"You have to keep in mind that before the guarantee runs out, these organisations have to meet the Reserve Bank's new standards for non-bank deposit takers."
Those new standards had been coming in for 12 months and required the institutions to get a credit rating and meet liquidity requirements.
"These institutions have to sort themselves out and we are keen to see signs they are sorting themselves out. We don't want them sitting there thinking the Government will fix it all for them." A guarantee was always a temptation for investors, English said.
Deane,
Good Post Mmmmate.
Not a good look
South Canterbury man in hot water
NBR staff | Friday August 7 2009 - 07:54am
Top Timaru lawyer and South Canterbury Finance chairman Edward Sullivan has lost his attempt at name suppression and reporting of a complaint by the Law Practitioners Disciplinary Tribunal last October.
He and fellow legal practitioner John McGlashan have been found guilty of professional misconduct in the case brought against them by the Canterbury District Law Society.
The sum of $100,000 had become due to a client’s account but they deducted fees of $22,022 against the client’s instructions for fees they claimed were outstanding.
Judges Panckhurst, Gendall and French upheld the complaint that the lawyers had acted without permission, against client instructions and had abused their trust.
Worries me when SCF has a stretched balance sheet with $170.2m advanced to related parties, and Hubbard is still talking about more dairy farm exposure.
Article also raises a pertinent question - did SCF bailed out ANZ and other banks from their exposure to Hubbard?
Let's hope Hubbard can pull this one out of the fire.
http://www.stuff.co.nz/business/2733...hern-exposure/
Southern exposure
By GREG NINNESS - Sunday Star Times Last updated 05:00 09/08/2009
Allan Hubbard has not let the hard times facing the dairy sector dampen his enthusiasm for pumping money into the industry.
"I just wish I had another billion [dollars] and I'd put it all into dairy farms," he said.
Hubbard is probably this country's biggest private dairy farm owner, controlling a one-third stake of Dairy Holdings, the country's largest corporate dairy farmer and interests in another 14,000ha of farmland which range from lush Southland farms to arid high-country stations.
His enthusaism for the sector was buoyed last week by the 25% rise in the price Fonterra is receiving for its milk powder.
He believes that if that trend continues, it could result in Fonterra's farmer shareholders, of which Hubbard is probably the biggest, receiving an extra $1 per share in their dividends.
"If you are forward-looking, you'd see the dairy industry is not going down the gurgler, it's the saviour of New Zealand," he said.
And he has been putting his money where his mouth is.
Last year Hubbard took out a $150 million mortgage with ANZ on five rural properties he and his wife Margaret own, to buy more of them.
And it says something about the depth of his pockets that most of that money had already been repaid.
"It [the loan] is only around $35m at the moment," he said.
Although farming may be Hubbard's great love, it is South Canterbury Finance (SCF) which has been requiring most of his attention over the past couple of months.
Much of Hubbard's considerable fortune is invested through his private investment vehicle Southbury Group, in which he and wife Margaret and their associated trusts hold a 73% stake. Southbury holds all of the ordinary shares in SCF.
With assets of about $2.2 billion, SCF is the country's third largest finance company but at the end of June it reported its first loss since the Great Depression, largely as a result of its property lending.
Hubbard responded to that by pumping an extra $40m into the company for working capital as if all he had to do was reach into the petty cash tin for the money. He is also providing SCF with a personal underwrite agreement whereby any SCF loans that become impaired will be secured against his private fortune.
Although those moves will strengthen SCF's balance sheet, it is not the end of SCF's problems.
Concerns about related party lending between SCF and other companies with which Hubbard is involved have dogged the company, while worries about its exposure to the property and dairy sector have put it at risk of a credit rating downgrade.
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There was a sharp increase in SCF's related party lending in the second half of last year, up from $62.6m in June $2008 to $170.2m by the end of December. The company's accounts for the year to June 2009 are yet to be released.
Most of the related party lending in last year's accounts was to other companies within Southbury Group. But SCF also lends to other companies in which the Hubbards have an interest.
Apart from Southbury's stake in Dairy Holdings, the Hubbards have stakes in 22 substantial rural properties with a combined land area of just over 14,000ha.
They own 100% of seven of these properties (1565ha) and partial stakes ranging from 23% to 75% in the others.
They also own stakes in a handful of commercial properties ranging from office buildings to coolstores.
Most of these have a single mortgage to one or other of the major banks, but a couple have second mortgages to SCF.
Hubbard said SCF would sometimes provide loans to the companies which own these investments when they were unable to secure additional funding from the banks.
Moonshine Farms, an 829ha Canterbury property in which the Hubbards are listed as the largest shareholders with a 38% stake, has a second mortgage to SCF securing up to $15m. The security for this loan was increased from $3.84m in January last year.
The first mortgage, securing up to $6.75m, is to ANZ.
Hubbard said Moonshine had borrowed money from SCF because it needed additional working capital but had been unable to secure this from its bank. This loan had since been fully repaid, but the security was left in place in case more money was needed in the future.
SCF had also provided a second mortgage to Viewbank Dairy, a 196ha Canterbury farm 30% owned by the Hubbards, to enable it to puchase some additional land.
Because the farm was involved in a dispute about water rights, the property's first mortgagee, ASB, was not prepared to advance any more money, so SCF stepped into the breach to allow the transaction to be settled.
Another company to have benefited from related party lending from SCF is Broadway Industries.
Broadway is an NZX-listed company in which the Hubbards are the largest shareholders with a one-third stake. The company's main asset is Mercer Stainless which manufactures and distributes a wide range of stainless steel equipment. The recession has not been kind to Broadway and, after posting a loss of $1.87m last year, the company undertook an asset sales and capital raising programme via a rights issue in which the Hubbard's participated to shore up its balance sheet.
To tide the company over until these arrangements could be completed, SCF lent Broadway $2m which was supposed to be repaid once the capital raising was completed although by last week, only $400,000 of the loan had been repaid.
Although Hubbard is confident that all of SCF's lending has met the arm's length test, it is likely to be one of the areas coming in for some attention as SCF tidies up its act ahead of Standard & Poor's decision about whether to maintain the company's BBB- credit rating.
A downgrade could make it more diffcult and expensive for SCF to raise money.
Hubbard said Standard & Poor's had not given him a date by which they wouild make that decision, but he expected it to be about the end of next month, by which time all of the work to strengthen SCF's balance sheet would also be complete.
Quote from that article linked - Although Hubbard is confident that all of SCF's lending has met the arm's length test,......
However it does seem that there are so many intertwined arms involved its all one big cuddle session
I have no beef with SCF lending to related parties if they are indeed arm's length and on pure commercial terms and criteria.
The big worry here is that SCF has been increasing its lending to related parties when other financiers are reducing theirs.
Official now
Marac, South Canterbury Finance downgraded to Junk
http://www.nbr.co.nz/article/marac-s...ed-junk-107458
So probably the biggest problem for them now is the previously trumpeted funding sources. Now they have been reduced to a junk bond status their are implications to the US bond issue.
Seems like a bit of a slippery slope to me
A capital injection of $40m from Hubbard saved the day .... but it seems as if it was their own money .... woonder if real money actually changed hands?
As the article says .... ...shuffling of assets between SCF and Southbury. Southbury sold its one-third stake in Dairy Holdings to SCF for $75.7m, and in return Southbury pumped $40m back into SCF as new ordinary share capital. ..... It is not known what happened to the $35.7m surplus this would have left in Southbury's coffers
http://www.stuff.co.nz/business/2778...dairy-sideline
Sounds like the wild days of pre 1987, front end loading technique. :mad:
So it was this reshuffle that ultimately caused the rating downgrade? That's a bit different from the capital-injection spin that was put out...
Not really junk bonds .... just not investment grade at the moment
See the yield on the SCF020 (June 2011) have come down to 11-12% on expectation that the govt guarantee will be extended
The SCF030 (June 2012) yields are still high at 16%
And looking at quitting the SCFHA Prefs I got at sub $40 a while ago .... quick gains there eh
Yes, SCF show their arrogance and distain for investors by being cute with their NZX announcements - the early July announcement re capital injection by Mother Hubbard only gave one side of the story - you needed to go to the website for the full picture (amendment to Prospectus 30 July)
But the folks who sold the bonds etc off on that (full) announcement (I think the SCFHA's got as low as 37.5 cents) are the ones paying the price for this arrogance
and by selling now guys, you are a month too late really - it's old news and was priced in at the time - now looks bid to me......
Interesting other things noted in that amendement to the prospectus
Like changing the Cash Flow statement for half year to December 2008 to account for the 'capitalised interest' of $25m (out of $111m in the P&L) .... restating the cash flow without this results in a negative operating cash flow of $6m .... which just happens to follow a negative operating cash flow of $8m in the 6 months to June 2008 (period June 07 to Dec 07 was positive $28m)
Gaynor mentioned in one of articles it was hard to keep track of what is going on in SCF because theys get reclassified so often ... I can see what he was getting at
One good thing though ... capitalised interest is still due ... just hasn't been paid yet ... and they collect interest on the unpaid interest as well
"One good thing though ... capitalised interest is still due ... just hasn't been paid yet ... and they collect interest on the unpaid interest as well."
Yes, assuming that it becomes "collectible" at some stage!
Things are happening
http://www.nbr.co.nz/article/south-c...rectors-110946
Does seem a strange action not to do anything with all new money since August 21st (not alloting the money being the term used)
And Lachie as usual unavailable to clarify further - so no doubt more speculation from the uniformed press - watch this space
http://www.nzherald.co.nz/business/n...ectid=10597679
The Timaru Herald reported today about the wanaka developer.
6 firms associated with Oakridge resorts were put into receivership on Thursday (Nord Ltd,Oakridge resorts Ltd, Oakridge resorts Holdings Ltd,oakridge land holdings Ltd, oakridge pool and spa resort Ltd and northern link developments Ltd).
Developer Par Hallberg,the sole director of all 6 firms, said money owed to SCF related to unrealised plans for a 48 villa development on 25 hectares beside the resort. After paying for the land and resource consents ,arrangements with an australian buyer fell through." I have lost everything I own."
SCF now own the land,2 restaurants,conference centre, reception, gym,pool and Mr hallbergs own house.
173 rooms at the resort are not included, having been sold to small investers.
Financing the land acquisition and development had been a drain on the resort business.
The cash was being supplied from the operational costs to pay the interest.
SFC refered all questions to the receivers.
This is a brief and may be in more papers tomorrow.
Reads like another credit downgrade .... but could be just another beat up from the (uninformed) press
South Canterbury Finance put on negative credit watch, 'risks increasing'
http://www.nbr.co.nz/article/south-c...reasing-111368
Yep - put on negative credit watch - there is an announcement from the company
Just having trouble finalising the June accounts .... all will be OK next week
Who put in that cheeky bid for the SCFHA at $21
Looks like the auditors are unable to sign this off as a 'going concern' , without fresh capital , and plenty of it , this is toast! Expect further delays at very best. M
Auditors are Woodnorth Myers
Imagine the US investors asking 'Lachie - who are your auditors' and lachie says 'Woodnorth Myers - respected accountancy firm in Timaru with a branch in Ashburton'
Not being disrespectful to anyone ... but appearances are important
And where is that going to come from. Synlait are looking for $100m, Silver Fern were after $128m, Fonterra for $1b (and the revised payout forecast is purely coincidental), Pyne Gould are looking for $180m. With a risk of loosing their credit rating and governement guarantee there are a lot of ducks that need to be lined up to claw their way out.
This sort of situation does raise some interesting questions about the proverbial "cash on the sidelines" that bulls like to talk about.
One interesting feature of the last 6 months is the degree to which a box ticking mums and dads investor could easily have become fully invested, without making a single real investment decision.
In other words, lets say they are generally a "buy and hold forever" type and owned shares in 25 companies in NZ/AU a year or so back. Lots of household names and perhaps a few small/mip caps.
It is quite possible that 10-12 of their holdings have had capital raisings in the last 6-12 months.
Now, ponder this.
(a) Returns on cash are nearly nil.
(b) The new shares are issued at a big discount.
(c) It comes with a big fat document that looks boring.
Anecdotally, I'm sensing that most people are not looking past (a) or (b). If they can find the cash, they take up the new shares.
The result of this is that - without making a single proactive decision - the investor has "doubled up" their exposure to markets, to retain the same (or in issues with institutional placements, sometimes less) exposure to the future profits and dividends of their investments.
Because of the discounted nature of the placements, they've reduced their average price therefore improving their overall portfolio gain/loss and are showing nice gains on the new shares.
There is a psychological "wealth effect" going on here, increasing confidence.
However, the devils advocate view is they've reinvested without making proactive decisions, eaten up their cash buffer, doubled up to retain the same perentage ownership (what are EPS figures going to look like?) and increased their exposure to the same managers that got them here.
It is *totally* a good thing that the capital raisings of the last year have partially restored the balance sheets of the actual businesses we as a community rely on to employ people and provide goods and services.
However, what would happen to investor sentiment should we get a second leg down, and many find out they've (fairly unwittingly) doubled up, erased their buffer, and now both their new and old shares in XXX long term holding are now underwater?
I'd say it would be pretty ugly, and if you need to raise cash, you'd want to have done so before that point.
I agree with SD & W69 above. Well thought thru post SD, covering several very relevant angles. Some endowment funds i know about are already in exactly the sort of 'drift position' you write about, with substantial amounts recently spent taking up issues & SPPs & still more to come, all without any actual investment plan.
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? - if not try to exit. What conditions are needed to sell out of this one at a profit? - if can find answer then enter orders & try to get cash back. What other things might we invest that cash in that could be better just now? And lots of similar thoughts. My rather conservative bias as trustee for endowment funds is towards a default cash position. But nowadays i'm much more rationally influenced by the likes of the very interesting charts and arguments presented by Phaedrus on this forum. Now i'm comfortable moving between 90% cash and 90% invested currently, & prepared to change tack the day after a wind shift is confirmed.
Several other posters too have offered much useful argument and advice, including the many & varied mistakes which enable the rest of us to learn expensive lessons kindly paid for by generous fellow members of the forum. I can now recognise quite a number of mistakes in my own past efforts - and find it can take a frustratingly long time to unwind past blunders & free up the cash to have another go.
Thanks for the timely warning of drifting investment sink-holes SD !
If South Canterbury was to go under before the government deposit guarantee lapses, does that mean debenture holders with maturity's expiring after 2010 are covered, or is it only for maturity's that actually mature before then?
The government guarantee applies only to those debentures that mature prior to 12/10/2010. If the debenture matures after this date it is not covered by the GDG. However, that's not to say that debenture holders outside that date will get nothing - normal receivership and deed rules will apply.
I assume that in the event of Treasury being asked to wrap the company up, all debenture holders are treated equally in terms of their claims on the companies assets and the Gov't only tops up those covered by the GDG. I.e. if assets equal 80c in the dollar, the Gov't tops up the 20c and those outside the GDG get 80c. Perhaps someone with reater knowledge than me can confirm this?
Lets hope that it doesn't come to this - won't be good for anyone (except Ausie banks) if SCF collapses. We need some solid well run finance companies in NZ to keep pricing tension on the banks.