Two tranches of South Canterbury Finance bonds have slid in value during recent weeks from $1 to 92c - with investors pushing through some exceptionally large trading volumes across the secondary board.
Sellers not only lose the 8c in the dollar from their initial capital investment but also the future interest payments.
Much of South Canterbury Finance's (SCF) capital is raised in bond issues, or by taking term deposits, a crucial component in funding its operation, especially with the worldwide scarcity of cash in the present credit crunch, ABN Amro Craig's broker Peter McIntyre said.
"Bond holders appear to be concerned at the headlines coming out of South Canterbury Finance," Mr McIntyre said in reference to SCF's recent lobbying of the Government to extend the deposit guarantee scheme and also concerns with its exposure to "related party loans" to companies associated with SCF chairman Alan Hubbard.
When contacted, South Canterbury Finance chief executive Lachie McLeod said he was not concerned at the bonds' below par value of 92c as investors recognised their redemption fell outside the guarantee period.
"Investors are waiting to see if the Government guarantee is extended. This [below par value] is the market at work," he said yesterday.
He pointed out a third South Canterbury bond tranche, due for redemption a week before the Government guarantee ran out, was trading at par, or $1 face value.
"There's your answer," Mr McLeod said of investor sentiment at present.
He was unaware if the Government intended extending the guarantee.
Two of three SCF bond tranches have since early May slid from the $1 par value to sell at 92c, with average daily trading volumes of 60,000-70,000 bonds overshadowed by sales of 711,000 bonds on June 9 and another 1.3 million on June 18.
Mr McIntyre said overall daily trading volumes were now at around 100,000 per day, noting the performance of a company's bonds was considered a key indicator to changes in its overall performance.
The two bond tranches are a $125 million five-year December 2007-December 2012 bond, offering an annual 10.43%, and a $125 million three-year June 2008-June 2011 bond, offering 10.5%, the redemption period of both falling well outside the conclusion of the Crown's deposit guarantee scheme in October 2010.
Mr McIntyre said while some bond holders were "taking advantage of the increased volume" by selling, others were looking to market regulator the New Zealand Stock Exchange for a "please explain" to SCF on the increased bond-trading volume and inter-party loans issues.
South Canterbury last updated the markets 11 months ago after the government asked finance companies to publicly report their circumstances.
Mr McLeod said the issues raised had been "well documented" by the media recently and no statement to the stock exchange was being considered.
Following the collapse of, or moratoriums placed on, failed finance companies, which has tied up more than $4 billion in investor funds during the past two years, the Labour-led government introduced the guarantee scheme, which ensures most depositors will not lose capital if participating finance companies fail.
Mr McIntyre said, "For investors, it would be a good time for another report from South Canterbury."
