SCF doubts it will meet NBDT requirements

South Canterbury Finance doubts it will meet the Reserve Bank's new regime for non-bank deposits takers when they come into effect, and has already made overtures about getting an exemption.

Wednesday, 25 August 2010

by Paul McBeth

SCF said it "expects that it will not comply with the regulations when they come into force, and will apply for an exemption from compliance for a period while compliance is achieved," in its latest prospectus, which it was forced to pull and amend after Standard & Poor's downgraded its credit rating to CC. It also expects its related party lending to fall foul of the new regulations.

The RBNZ's prudential requirements come into effect in December, and will require non-bank deposit takers to hold a minimum capital ratio of 8% of tier one capital and impose restrictions on related-party lending. It also requires financiers to implement a risk management plan, hold a credit rating from one of the three major agencies, which SCF has achieved.

"The company intends to restructure and reduce its related party exposures to comply with the regulations, but this will require its recapitalisation plan to be completed and will also depend on the exemptions, if any, granted by the Reserve Bank," the company said. If an exemption is not granted, it may not be able to continue its current business activities.

The lender is working to secure a new investor as part of its recapitalisation plan before the end of the month, when its waiver for breaching its trust deed expires.

The firm has seen its reinvestment rates decline over the past year, due in part to the nine weeks where it was unable to raise new funds while it amended its prospectus, though new investors have helped it through its $460 million wall of maturities at the end of June.

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