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Why hasn’t Sandy Maier started selling key assets to keep the beleaguered South Canterbury Finance afloat after the backwash from Allan Hubbard’s statutory management?
The Government’s move to put Allan Hubbard and a group of associated trusts into statutory management may prove a massive own goal.
The move has not only exposed the underdeveloped business plan of South Canterbury Finance chief executive Sandy Maier, but it has undone the Government’s own sneaky efforts to keep the Hubbard-associated finance company orderly.
Last Friday Maier was reported in effectively commenting on debenture inflows since Hubbard was poleaxed by the government regulatory authorities.
quoted Maier as saying SCF could pay maturing investments ‘‘for now’’.
‘‘No question that if people cease sending in new money and cease rolling over sooner or later, probably sooner, there will be a problem,’’ he said.
Asked if SCF could pay maturing debentures, he said: ‘‘The answer for now is ‘yes.’ It’s my job to ensure it stays ‘yes’.’’
Maier is arguably too honest. You don’t have to search between the lines to judge that money flows into SCF have dissipated since brand Allan Hubbard has been dented (they might be marching in support for him in Timaru, but the rest of the country suspects when the Serious Fraud Office is called in, not only poor record-keeping is at stake).
Maier’s words contrasted with those he used after a series of investor meetings spruiking debenture holders to reinvest their money.
He described those meetings as ‘‘fantastically successful’’ and having ‘‘wildly met or exceeded our expectations’’.
SCF has just under $1 billion of deposits maturing about the October deadline for the first government guarantee scheme.
Maier was reported as saying that about half of that amount was being reinvested or pledged.
But it appears that even offering the ridiculously attractive rate of 8 per cent, the government-guaranteed SCF is struggling to stay liquid.
The extension to the government guarantee only ever bought time to fix the balance sheet, which needs to be either heavily reinforced with equity or downsized.
What has puzzled Chalkie is why Maier has not been trying to move quickly in terms of asset sales. He’s seemingly putting all his chips on the government guarantee buying Hubbard enough time to raise fresh equity in the group.
Surely the situation has appeared more desperate than this from the inside, because it sure hasn’t looked fresh from the outside.
Maier has talked about SCF having three businesses – a good finance company, a bad loan book and a ‘‘private equity’’ portfolio of businesses.
The point is SCF hasn’t got enough equity to support all three businesses. SCF is like an overgeared property developer wanting to keep the holiday house on Waiheke, the Porsche and the Parnell mansion.
SCF had at the time of its last report (adjusted for Hubbard’s subsequent equity injection) about $170 million of tangible equity supporting business investments of $400m and $1.5 billion of finance assets.
If the company really wants to keep all these assets an additional (rough stab) $300m of equity is needed. That’s unlikely to be raised, so why hasn’t SCF been selling the business assets which are so ‘‘equity needy’’?
There has been a desperate need to monetise assets – the big ones being Helicopters (NZ) (supposedly worth $120m-plus) and the 34 per cent stake in Dairy Equities (about $100m).
Gee, those would be useful amounts to be putting into the kitty right now as well as getting the buyers to refinance the businesses from someone other than SCF. If Maier had started this process in March he may have already brought in $300m of cash.
Maier has been stuck between two masters. Looking pretty much like a government appointee, his one equity owner is Allan Hubbard, a reputed magpie with more appetite for debt than for selling his beloved assets.
Perhaps Hubbard has effectively blocked Maier from selling Helicopters NZ or Dairy Equities? At times it has been hard to know where the power has resided in this relationship, although it is now with Maier.
Chalkie has heard conspiracy theories that the SCF directors encouraged the statutory management move so the board could begin selling businesses.
If this is true, they and the Government have seriously miscalculated the pull the untarnished Hubbard had with debenture investors.
It will be ironic if the Government move effectively results in SCF going into liquidation prior to the extended guarantee scheme kicking in. Ironic because the Government bent over backwards to extend the guarantee to SCF, which didn’t deserve the privilege.
Chalkie has written that he believesStandard and Poor’s granting of an investment grade rating in March for SCF was nonsensical and probably born of political pressure. The nonsensical bit is evident by the fact the rating agency has subsequently downgraded the company several notches before seeing the next balance sheet.
Once the rating was secured, the Government moved with indecent haste in terms of extending the guarantee even though SCF’s balance sheet was miles away from meeting the criteria set down by the Reserve Bank.
The extension of the guarantee to SCF appeared a jack-up by the Government which did not want New Zealand’s biggest finance company going into liquidation/ receivership or the bill under a disorderly wind-up scenario.
All the Government’s efforts to protect SCF and its liability under the guarantee could be undone by the decision to place Allan Hubbard into statutory management.
The fixing of a $40m problem at Aorangi may create a $2b SCF problem.
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