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
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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
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]."
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.
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.
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.
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!
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.
Well, audited accounts were promised by today at the latest......bonds suffered late accordingly
Chris Lee says be patient mate .... it'll be OK
http://www.nzx.com/news/markets/2916...s-for-patience
OH righto then :):)
Might even ring him for advice
SCFHA also new lows 28c .. you still hold these 'Winner'??
M
IF you believe SCF will come out the other side, the SCFHA's are a stunning buy........
the yield will be over 3 times the annually reset coupon rate, forever.......
Made a few bucks on the first dabble .... but yes still have some
Even the SCF10 things at 28% look interesting as well
Pity the NZ debt market not very liquid ..... could have a lot of fun
Probably good news coming out this week and things will be OK .... of course they will he says
Given the SCFHA's are basically equity, also a possibility they offer a one for one conversion for an IPO as well...current holders would take it I would suggest
SCF results looks like a restructuring under way with the help with its financial advisors F Barr, also in discussion with its U S bond holders , these events could cause a drop in the Red pref shares.
When are the interest payments due , are they quarterly, half yearly and how much each payment period?
Gidday
I feel these shares are One Dollar shares, They are preference & get automaticaly adjusted on the same terms as recapitalsation.
"3 times the annually reset coupon rate, forever" currently 9.42 % and they are on sale at 28% of the one dollar face value.
The dividend is paid 3 monthly.
E&oe
Banks turn off loan facility for Sth Canterbury finance
http://www.nzherald.co.nz/business/n...0600654&pnum=0
..... and putting things like ".... that there was a "fundamental uncertainty" about South Canterbury Finance's status as a 'going concern'" will give some the ****s
SCFHA might even get cheaper .... now 2550 .... blame the uninformed press doing the good old beat up trick
Is it game over?
Too big to fail? Rubbish. Tell that to Lehman Bro etc.
Hands up anyone in this forum would buy SCF shares during the cap raising? Not the Doc. I think NZers have had a guts full of the BS in finance Cos. Related party loans to crap assets. Investors are just making the promoters rich.
They play with our money, they get rich, they laugh all the way to the bank and we suffer. Thats the name of the game.
Winner 69 maybe Dr Who is being realistic. Many made similar comments about Strategic, but it went down in a screaming heap
Talking about related party loans
From the Herald 'SCF's impaired and past-due loans rose to NZ$445.9 million or 26 per cent of total gross loans by the end of June, up from NZ$85.2 million or 6 per cent a year earlier' ..... holy **** ..... 26 of the loans are overdue
BUT SCF said no related party loans had been written off or forgiven during the year.
The meassage of course is that the related party loans are the good part of loan book .... yeah right
Watch those magicians play their tricks and hypnotize the Mums and Dads into a story straight out of the Alice and Wonderland.
Lets all have a tea party, shall we?
What ever happened to the 'Alan will underwrite the Bad Loans' promise of July?? Perhaps $445m a tad beyond the old beggar? What a shambles ,,, cant for the life of me see how the Govt would or should honour the GG as it appears almost certain that the real state of the loan book at SCF was very different to what has been reported , for a very long time (note last years profit figure being 'amended'). M
Please excuse my ignorance, but is SCF listed ? or just it's bonds ?
Read the comments at the end of this article
http://www.nbr.co.nz/article/south-c...-breach-112177
Heavy redemptions coming up ... people not renewing / rolling over existing things .... even with a government guarantee
The red flags are certainly flapping hard in a gale now. We only have to look back on past finance company collapses to see the same things recurring.
- inter party transactions
- iffy loan book
- late audited accounts
- breach of covenants
- fronted by a person who is giving an illusion of integrity
- preliminary results inconsistent with final results.
Fair value adjustments smell of cooking the books to me. Fair value should have been well understood by a company of this stature a few months ago. Nothing should have changed in their interpretation of fair value to create a difference between the preliminary and final reults.
The Dunedin office has been closed down.
That's the one that has advertised property investments (which they had financed and word on the street said the developer was in difficulty), boats & farm bikes in the window over the last year or so...
A saving on the main street rent, I guess?
The yield on the listed bonds are blowing out big time. Market obviously does not buy into recapitalisation or safety of government guarantee?
How good is the government guarantee? Can it be void if SCF has not fully fulfilled its obligations?
There are some sweating it out there - Forbar who has single-handedly pumped in tens of millions into SCF and Chris Lee who waxed lyrical about the greatness of Hubbard and his undoubted integrity.
Turns out SCF is managed more or less like most of the other finance companies - plenty of property loans and related party transactions (last count $230m?).
Sweating here too, but decided it's too late to get out, will just hang in and hope if they go under, there will be something left for the debenture holders. It's a hard choice to make.
The government guarantee is fine. Its just that it runs out 12/10/2010. To participate in the extended scheme, you need a credit rating of at least a "BB" and have to pay a cool 150 basis points on deposits. If a finance companies' bonds are maturing after this date, then they need to have a rating to have the them covered by the govt guarantee.
So the question is, will SCF gain a credit rating? At the moment, the market is pricing in....well...a yield to maturity of:
~30% for their 15/1/2012 bonds.
~20% for their 15/06/2011 bonds.
The shorter maturity bonds within the current government guarantee scheme has them trading at a more normal yield, because they are covered.
~7.50% for their 10/08/2012 bonds.
Hope that helps clarify a few points Balance.
You should be fine if your debenture is covered by the government guarantee. There's something dreadfully wrong with the listed bonds trading at 20% and 30%. Market is saying that SCF's guarantee could be void?
Amazing the company is not coming out and saying something.
I'm tempted at that sort of yield. Can ol'hubbard bail this out? Can't believe they got up to the related party lending as all the other outfits, really!? Hubbard has been around and around again, surely he'll find a solution to this?
Seems Chris Lee is now the mouthpiece for SCF - whats wrong Lauchie, cat got your tongue?
more delays, softened by purring "imaginary" facts from a third party
http://www.stuff.co.nz/business/mark...vate-investors
I think they come out the other side personally, but patience is required..... and being tested
Hands up who here will participate in SCF cap raising. :eek:
Name any broker who hasn't got clients into SCF....their bond offers were snapped up, and their roll-over % rate and new funds % held up very well right through last year/early this year
I know the exchange rate is good and would be a good time to pay back the yanks but
with preference share at 24cents wouldn't it be better buying them back?
A. is it ethical?
B. what a hell of a deal, wipe a $1 of debt for a mere 24 cents and on top they won't
have to pay the 5.61% divy.
Yes it's ethical - just needs a Directors resolution to approve purchases and declaring them as they go.
Infratil are already doing this with IFTHA's - reason for purchase - "in the best interests of the Company and shareholders"
SCF probably aren't doing it coz they have solvency/liquidity issues more pressing, but if and when they sort that out, apart from the market rerating these back to 50 plus, if I was a director, I'd be recommending buying the snot out of them
Reason why they would not be doing it already is that SCFHA's are considered as capital....
re exchange rate being good, they are already hedged back to USD at around 79 cents, (from annual accounts)
Lee's comments, as I said earlier, are softening, twisting and purring on behalf of SCF, IMO
-------
SCF 15/10/2009 HALT
REL: 1447 HRS South Canterbury Finance Ltd
HALT: SCF010: Trading Halt of Securities
15 October 2009
NZX Regulation Announcement South Canterbury Finance Ltd (SCF010, SCF020, SCF030 and SCFHA) Trading Halt of Securities
NZX Regulation advises that, at the request of South Canterbury Finance Ltd, a trading halt has been placed on SCF securities trading on the NZDX, effective immediately.
The trading halt has been place pending a material announcement relating to the company.
The halt will remain in place until the announcement is released.
ENDS End CA:00186352 For:SCF Type:HALT Time:2009-10-15:14:47:18
--------
SNOOPY
Hard to imagine the news will be anything but BAD! Writing has been on the wall for 6 months.
M
A month ago they were going to appoint 2 new independent directors. No news on that so perhaps the 2 are having second thoughts on joining. If it had looked rosy it surely it wouldn't take so long to sign them up.
SCF
15/10/2009
GENERAL
REL: 1743 HRS South Canterbury Finance Ltd
GENERAL: SCF: South Canterbury Finance - Update on restructuring
15 October 2009
South Canterbury Finance - Update on restructuring
South Canterbury Finance is pleased to make the following announcements to
its investors and the market.
The Company has reached agreement in principle on repayment terms with the
five noteholders who invested pursuant to the Company's $US100 million
Private Placement facility (USPP).
The agreement provides for the principal to be repaid over the next 5.5
months. The Trustee for South Canterbury Finance debenture stock investors,
Trustee Executors Limited, and ratings agency Standard and Poor's, have been
briefed on the arrangement. Documentation is in the process of finalisation.
Unwinding currency swap hedges on the USPP facility will release cash for
South Canterbury Finance.
USPP investors were able to seek immediate repayment of their notes when
certain covenants were breached following release of South Canterbury
Finance's audited financial statements for the year to June 2009.
The Company is now moving to register a new prospectus for the issue of
debenture stock and deposits. The Company continues to have the benefit of a
Crown guarantee under the government's retail deposit guarantee scheme in
respect of its debenture stock and deposits that mature, or otherwise become
payable on or before 11 October 2010.
The Company also intends applying to participate in the extended deposit
guarantee scheme announced by the Government on 22 August 2009. In order to
be accepted into the extended Crown guarantee scheme, the Company will need
to meet certain eligibility criteria and be accepted for participation by the
Secretary to the Treasury.
South Canterbury Finance has cancelled by mutual agreement with its banks the
$100 million standby credit facility. This facility was undrawn.
A new credit facility for $75 million with a new third party provider is in
the final stages of being arranged and is expected to become effective over
the next week.
South Canterbury Finance is continuing to work with its principal
shareholder, Southbury Group Limited and its advisors, Forsyth Barr and
Harmos Horton Lusk, on a restructuring and recapitalisation programme for the
group. This will include the appointment of new independent directors to
South Canterbury Finance. Further details will be announced as they are
finalised.
For further information please contact:
Lachie McLeod 0294 723 463
Chief Executive
South Canterbury Finance
End CA:00186369 For:SCF Type:GENERAL Time:2009-10-15:17:43:52
The critics have gone quiet.....you all thought the receivers had been called in didn't you?
seems to me they are working through the reconstruction process, slowly but surely, and under immense pressure I guess
DOC, not sure the Cap raising will be directly into SCF - probably Southbury, who then infuse it into SCF. I think the culture of it being Hubbard's piggy bank is too deeply embedded and they want to take all the profits (once back to being profitable) directly back to Southbury. Investors get their interest, no less, no more.
Big yawn really. All the talk about constructive and positive discussions with the USPP noteholders and they demand their money out first - pronto.
But realistically, what were the USPP noteholders going to do? Pull the plug and have a messy work-out? Better to give SCF 5.5 months and have NZers bail them out with government guaranteed depositors' money. Good one!
SCF is simply buying time - but it could be that time will solve the company's problems. A reflating economy can do wonders for property exposure.
Time will not change the fact though that SCF is no more than just a South Island finance company without any real expertise in lending and has also been used as Hubbard's piggy bank. Worse that he chose to use it when the writing was on the wall. Reckless and contemptous of market reality.
I cannot see a 'white knight' being prepared to put up with that kind of nonsense.
With the prefs down to 24c or thereabouts, is it best to stay in there do you think?
Whilst the pref share holders have been hit hard (if they bought at $1 par), the past is the past, and getting out today means giving up a current yield of more than 25% pa - that seems pretty good to me!
The replacement of the $100m facility with a new $75m one (plus liquidation of some forex hedges relating to the $100m) seems like a bit of a non-story to me - it just removes the uncertainty around the $100m I suppose.
What would you do? Stay in the prefs, sell out, or even increase holdings at 25% yield?
Thanks,
Alan.
You would be a tough nut to make a call on this one. I dont think there is a broker out there that would put his/her nut making a call.
Would the Doc buy this... NO! Why? Anyone that dips their pen in company ink is a NO NO in my books and will not get the Doc's support.
disclosure: not a shareholder
I also think Xerof and Balance have summed it up nicely.
Hi Qoh,
Does it really make any (rational) difference whether you bought them at $1.00 two years ago, or $0.23 yesterday. Right now, you can sell for $0.29. Surely it is the yield, and expected future movements that matter, not your purchase price?
Or am I missing something?
Thanks,
Alan.
Alan , as part of any recapitalisation the prefs will likely be converted to ordinary shares , imo .
M
Yes, thats my view too Misc, but that depends on who raises the capital, SCF or Southbury - see earlier ramblings
Hi Misc,
That will be interesting. Would they have to convert are par value ($1.00 each)? If so, then the pref share holders would receive $1.00 of market value of new, ordinary shares, for each $1.00 (nominal) of prefs they hold?
If we assume, for the sake of discussion, that the recapitalisation is done by way of a public offering, then effectively the pref shares would actually migrate towards a market value of $1.00 each?
Is that right?
Thanks,
Alan.
Alan , the Co is insolvent , and desperately needs new capital to survive , therefore any 'white-knight' will call all the shots , pref holders will likely have to vote to convert to ordinary shares , or the Company folds ... Hobsons Choice!
Possibly even the 2011 and 2012 Bonds may also be converted to ordinary equity ?
M
Hi Misc,
Why do you say it is insolvent?
The latest financials (published a few weeks ago, for the year to 30 Jun 2009) do not indicate that.
The auditors gave the technical 'uncertainty' statement, but they would have had no choice but to effectively offer 'no opinion' which is what that really means, since the $100m of financing was repayable on demand. That meant that SCFs going concern status was dependent on the US investors not making that demand.
The announcement yesterday that they are replacing the $100m of loans (repayable on demand) with $75m (we don't know yet, but maybe not repayable on demand) would seem to say that they are fine?
If they sit tight and stop lending, and just take in the repayments on existing loans, then they should be fine (albeit much smaller!) over time?
Thanks,
Alan.
Alan: You are absolutely right, and this is a point that many investors fail to grasp, irrespective of the particular investment. Whatever has been paid for a particular security is history and is utterly irrelevant to today's decision-making processes (ignoring CGT and other tax considerations, of course).
I have not contributed to the ongoing discussion on SCF for a few days as I am growing rather weary of all the would-be funeral undertakers - they could scarcely contain their glee when the company went into a trading halt yesterday, only to be bitterly disappointed that its death was not subsequently announced; instead, sensible progress is being made towards a more solid future. SCF will not be allowed to fail - and I make that statement advisedly. It is certainly not "insolvent" by the accepted definition of that term. And snide remarks like "South Island brokers pushing South Island investments" are uninformed and unwarranted - why not similarly dismiss "North Island brokers pushing North Island investments"?
I also happen to agree with the observation that it is quite possible that preference shareholders may be given the opportunity to convert to ordinary shares. Remember, this was being given consideration when Alan Hubbard first conceived of a public issue of securities a few years ago but he then backed away from the idea. With the benefit of hindsight he probably now wishes he had gone ahead with that proposal at the time.
My own considered view is that the present depressed prices of each of the listed SCF securities offer great opportunities for those who are prepared to venture their arm.
Nobody will and should ever argue that NZ needs companies like SCF. Especially with the finance sector now controlled by the freaking Australians who care not a hoot about NZ businesses.
That does not mean however that NZers should blindly support any NZ finance company - especially when the company contemptously (in my view) uses the public's money for private purposes.
SCF has to change dramatically and this crisis is good if SCF learns from it. What does not kill it will make it stronger.
A few points :
1. When a company cannot meet its obligations when they are due or are called, are they not 'insolvent'?
2. Are you comfortable depositing money with a company which is reliant upon a short-term crown guarantee to fund long term lending?
3. The reference to SCF as a South Island company is and was used extensively by certain brokers to differentiate it from other finance companies - that it is conservatively run etc. Suddenly it's not okay to refer to SCF in the same light?
SCF has 5.5 months to recapitalize and become strong again. Let's hope it has learnt a valuable lesson.
A few points :
1. When a company cannot meet its obligations when they are due or are called, are they not 'insolvent'?
No they are not. insolvent is when liabilities are greater than assets.
Currently , SCF cannot repay the USPP .... of course that might change , but as of now (and as flagged in the accounts) the company is insolvent. Period.
M
As a Chartered Accountant I am fully aware of the accepted technical definition of insolvency but, having renegotiated the US Private Placement repayment terms, SCF cannot be classed as "insolvent" on that score. How many other publicly-listed companies have re-negotiated their debt facilities, particularly in recent times? For instance, PGG Wrightson? Think about it.
Hi Balance,
That is correct, but it does not, at this or any time in the recent past at least, apply to SCF.
The $100m 'facility' was repayable on demand. If such a demand had been made, then it might have become insolvent at that point in time, however no such demand was made, and hence it was not insolvent.
That is why the auditors declined to express an opinion either way on the 'going concern' status of SCF at the time they signed off the audit report (using the term 'fundamental uncertainty').
The more I think about it, and subject to the details of the new $75m facility, it appears to me that SCF is now on solid ground, and the yield that we were getting last week (25% pa +) on the prefs was excellent value. I would expect the price to increase / yield to fall this week a little pending the details of the new facility. If is looks 'good' then I would expect that yield to fall further - probably at least back to the mid to high teens , implying a price of around 35c or more for the perpetual prefs?
Alan.
I mentioned this some time ago.......
IF you believe SCF can come through this difficult period, with sufficient capital, a credit re-rating to investment grade, possibly a re-invigorated management, and certainly, a better attitude to how it runs its business, then the SCFHA's are a stunning buy.
Remember they are Perpetuals, with an annual rate reset, so we need to look past the current coupon of 5%ish, to assess what a longer term yield might be at the current price of 32/35 cents
If the coupon averages anything like "normal" NZ yields plus the 2.3% margin, lets say 9/10%, then the long run average yield will perpetually be nearer 28/30%
There are a lot of IF'S to be sorted but those are the sort of parameters we are looking at based on todays price.
Not a bad risk/return......
Nice for SCF to read that there's still blind faith out there.
SCF was insolvent - the USPP holders demand repayment and SCF could not pay. That is a fact. Now SCF has 5.5 months to pay.
Where is it going to get its money from? From the NZ public no less under a short term, government guarantee. But its assets (lending) are long term.
As I wrote before, the market is not dumb or fooled. That's why the yield is so high.
If you are such a believer in its survivability, its bonds are the best buy in the market. Go for it.
I have missed something here!!!!
when have the USPP holders demanded repayment of the bonds?
you havn't answered the question.
The USPP holders demanded repayment as they were entitled to once SCF breached its investment grade rating.
SCF could not pay or has negotiated a 5.5 months period to repay.
You want SCF to tell you that? Same company which has been piling on related party transactions without letting the market know?
Read the NBR.
Things have definitely got better for SCF - but there is still a long road ahead for the company.
I would not get out if I had the bonds. Not at this kind of yield if you have them. Watch for the next piece of good news and then, look to get out.
Money is too hard earned to leave it in a company which totally ignored market reality. I still cannot get my mind around how the related party transactions kept growing in the last year when the market clearly said it did not want to see such transactions. Something stinks very badly.
Thanks Balance.
Balance, the issue of related party transactions is also my major concern - as you say, smelly and probably nest feathering.
I also thought the announcement saying Southbury had injected 40m in equity, but failing to directly mention that Southbury had also sold 75m of dairy farms to SCF was disrespectful and arrogant.
Any thoughts that SCF was a 'conservative South Island lender' went flying out the door when they 'loaned' CEO McLeod $15m to buy SCF shares ...imo
The reported interest rate is 6% , so where does he find $900kpa to fund this ...?? Capitalised no doubt ,, just gets worse.
M
They should buy Crafarms, amalgamate it with Dairy Farms and do an IPO. There's demand out there for food/protien, especially out of Asia. The cash would help them get their books in order. Anyway, that's the jist of an article I read in the mag. section of the local supermarket.
I'm with Balance on this now.
I bought the prefs at 23c last week, giving me a yield (on cost) of more than 25%.
I could sell out 2/3 of them now and have no net cost (if you want to look at it that way).
If they get back up to the dizzy heights of a 50% discount, then I will have doubled my money, and still be getting the 25% yield (on cost).
I suspect I'll wait for the next bit of good news and bail out in the high 30s or low 40s, but either way it seems very unlikely they'll go below the 23c I paid unless the whole thing goes totally belly up.
Alan.
Sounding confident. Wishful thinking - current management team knows as much about banking as Colin Meads about 'Solid As'.
SCF 'to become a bank'
The Press Last updated 05:00 19/10/2009
Long-standing Timaru finance company South Canterbury Finance could become a bank within five years.
South Canterbury Finance's chief executive, Lachie McLeod, said it would make sense for the company to become a bank.
"In the timeframe, yes there's no doubt about that [possibility of moving to bank status]. It certainly hasn't been on our short-term radar," Mr McLeod said.
"With the (tougher) non-bank regulations coming in, it's certainly an option."
The finance company is also held up by some as a necessary competitor to the Australian-owned banks, giving affordable loans to the small and medium operators in the towns and rural hinterland of the South Island.
Financial commentator and SCF investor Chris Lee added that down the track he saw SCF and perhaps other "best quality" non-banks (like Marac) joining together to be a South Island bank: "Ultimately [I hope] the South Island brings together some very decent organisations to provide a facility New Zealand badly needs, which is a South Island bank."
Last Thursday SCF announced it had been given some breathing space in its long-awaited recapitalisation plan by being allowed to make gradual repayments on US$100 million owed to US investors. The in-principle agreement means five noteholders who invested in the US$100m private placement facility will be paid back over 5 1/2 months, with the first unspecified payment due next week.
International ratings agency Standard and Poor's put SCF's already downgraded BB+ rating on creditwatch negative, meaning a one-in-two chance of a further lowering of its credit rating in the three months to December 21.
Meanwhile, SCF continues to look to claw back loans that have gone sour. The company as mortgagee was in possession and looking to sell the old Dunedin Post Office building for about $7m, Mr McLeod said.
It is also yet to disclose firm options on a recapitalisation that could raise between $150m and $400m.
The market has speculated that SCF owner, the Southbury Group, could float part of its business, with another option being capital input from new investors. A beefed-up management team is also likely, Mr McLeod confirmed.
LOL.
To be honest, I think that was pretty obvious.
If they had been subject to a repayment demand it would have been a material event that would have had to be disclosed to the market.
The only way anyone could think otherwise would be to suggest that the directors breached listing rules. If someone had evidence of that they should most certainly bring it out into the open, but I do not believe that such a situation arose in the recent past.
Alan.
PS: From 23c, prefs were traded today at 35c (as of 3:55pm) giving a 50% gain in three trading days, so the market seems to view the announcement last week positively. I am currently viewing 35 - 40 c as being a fair value with upside potential.
[QUOTE=Alan3285;278209]LOL.
To be honest, I think that was pretty obvious.
If they had been subject to a repayment demand it would have been a material event that would have had to be disclosed to the market.
The only way anyone could think otherwise would be to suggest that the directors breached listing rules. If someone had evidence of that they should most certainly bring it out into the open, but I do not believe that such a situation arose in the recent past.
Alan.
balance might like to ring NZX and report it
[QUOTE=temuk;278240]Laughing Out Very Very Loud. And you think the NZX cares a stuff about investors? Have you seen one single NZX price inquiry as the yield on SCF bonds kept blowing out and the value of the bonds keep dropping?
Also, SCF must now be the biggest laughing stock in the Western financial world - it is repaying US$100m of debt when it is in dire straits without the lenders requiring/demanding repayment. Wow!
Balance maybe they just demanded a very large increase in the interest rate as I beleive they were entittled to after credit rating downgrade & that was more unpallitable than paying it back
I would just like to point out that what you seem to have quoted me saying, I did not say (about you phoning the NZX) although if you know something then I would support you doing so.
However, on your point above, I wonder if there has been some misunderstanding?
I believe that SCF said they were replacing the $100m facility with a new one of $75m (and in the process unwinding some hedges that will free up additional cash)?
If so, it seems to me that re-financing is hardly an unusual thing for any business if they can get a 'better deal' (lower costs, better terms or whatever), and in doing so, the original facility would usually be repaid even if the lender had not specifically demanded repayment?
Thanks,
Alan.
Good post alan
Many wont get the point though....
BB:)
ps coz they wont want too !!!