South Canterbury sweating on liquidity

The timeline for the government’s retail deposit guarantee has put pressure on South Canterbury Finance’s liquidity position, according to rating agency Standard & Poor’s.

Friday, 5 March 2010

S&P downgraded the Timaru-based finance company this week to BB from BB+, and put it on a creditwatch negative, giving the firm a 50:50 chance of a further downgrade in the next 90 days.

Credit analyst Derryl D'Silva told depositrates.co.nz that the company's liquidity was the main cause for the negative outlook, and that the government guarantee had caused a lot of debt to fall due around the end of the first tranche of the scheme.

"The creditwatch negative risk relies on stakeholders' reaction, and whether they will continue to support the company," D'Silva said. "They're weaker than other non-bank deposit takers with a BB+ rating."

South Canterbury Finance flagged a $1.1 billion hole of debt coming due before the expiry of the existing government guarantee on October 12, and chief executive Sandy Maier has acknowledged that the extended guarantee has made itself a necessity in giving investors piece of mind to roll-over their deposits.

Still, investors have been relatively supportive of the finance company owned by Allan Hubbard, boosting its deposits to $34.9 million in the six months as at December 31, from $29.2 million in June, according to the company's latest investment statement, and Maier has expressed confidence that they will meet their obligations with renewal rates of between 50% and 60%.

S&P's D'Silva said South Canterbury "investors have remained loyal and that helped them repay the US private placement investors - that kind of loyalty is necessary to get back to a rebalanced liquidity."

The rating agency is less supportive of South Canterbury's recent capital injection that saw parent Southbury sell its 100% shareholding in Helicopters (NZ) Ltd and Scales Corporation to the finance company for a share issue worth $152.5 million and a payment of $10 million in cash.

D'Silva said the $150 million injection was inconsistent with other similarly rated company in boosting their balance sheets, and the rating agency would keep waiting to see what the company will do to restructure its business.

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