HNZ and PGF Cashflow Crisis
Quote:
Originally Posted by
Lizard
So presumably, amongst the ST experts, credit risk is the main concern? How would you go about judging that?
Of practical concern for old owner PGW was the ongoing depositor and lender cashflows in PGF from here on in. Net negative cashflows would ultimately stress the now HNZ balance sheet, should that be required to be called upon as a result of depositors not reinvesting enough money. This was certainly the case with PGF as it existed within PGW. And this reasoning was put forward by the board of PGW as the real reason for the PGF fire sale.
I would be interested if you expanded a bit more on your opinion here Lizard as it relates to HNZ:
“My prior concerns were regarding liquidity, particularly in regard to the expiry of the govt guarantee. However, the accounts suggest that they have managed that quite well and the expiry in itself is unlikely to pose a threat at this point.”
In the case of PGF, it seemed that getting some balance with the depositor reinvestment rate and deposit rollover time period verses the underlying farmer loans was going to become an issue. Under note 23 of the PGF FY2011 accounts, we see that $185.924m of secured debentures are redeemable within a year (mostly this October, the one coming up in a few days) when the government guarantee scheme runs out. Could PGF as a stand-alone entity attract the required new and/or reinvested depositor capital in time? This is the capital required to match the $333.911m (see PGF FY2011 Note 14) of customer loans also due to expire over the June 2011 to June 2012 twelve month period.
Far from saving PGF, it looks like the government guarantee has contributed to the firm’s stand alone downfall by concentrating all the term deposit maturities around one date. Thus a ‘wall of reinvestment’ is created that cannot be easily hurdled.
How will putting on a new brand of running shoes allow the renamed Heartland (rural division) to clear this jump? Keeping back $90.9m of loans:
$333.911m- $90.9m= $243.0m
does help, yes. But it doesn’t fix the now HNZ problem from where I sit.
SNOOPY