The auditor's report and accounts will have major ramifications for SCF's crucial, but languishing, international credit rating.
Additional costs appear to be looming for the country's largest private finance company, which is shouldering more pressure to clean up several aspects of its loan book.
Analysts believe SCF might have to pay more to be included in the Government's extended guarantee scheme, possibly up to $25 million, and there is also potential for its already blown-out bad debt provisioning (expected defaults) to increase again.
Craigs Investment Partners broker Chris Timms said the auditors, knowing they were under scrutiny with the New Zealand Institute of Chartered Accountants conducting a peer review of the SCF accounts, would take a "conservative" approach to the company's debt provisioning.
"[Bad loan] provisioning is one of the most difficult aspects to determine for company auditors.
"They will be taking a very conservative approach, and it's likely provisioning could possibly be up a further $10 million . . . because of the complex nature of the company structure," Mr Timms said.
South Canterbury Finance's bad debt provisioning had already leapt from $8.6 million a year ago to almost $50 million.
"This downgrading and inability to immediately source funds is not good for South Canterbury, and it is unsettling for investors," Mr Timms said.
Release of SCF's account has been delayed by several weeks because the institute requested a peer review of the auditors. It is expected to be released by the end of the month, which would allow SCF to register a new prospectus and allot new securities and allay concerns, chairman Allan Hubbard has said.
SCF chief executive Lachie McLeod could not be contacted for comment yesterday.
International rating agency Standard and Poors further downgraded SCF's BB+ rating by putting it on negative credit watch on Monday.
This meant the company had gone from a one-in-three chance of a downgrade during the next three months to a 50:50 chance of a downgrade, as without a prospectus, SCF's "funding flexibility and liquidity are undermined" in the short term.
S&P expects Mr Hubbard to "remain committed to providing timely support" to SCF if required in order for it to maintain its BB+ rating.
"If support is not forthcoming, or is not sufficient to afford debenture and bond holders confidence, it is likely the company will be immediately downgraded," S&P's credit analyst said.
Also, SCF will have to pay substantially more to remain in the Government's guarantee scheme, which guarantees investments of up to $1 million per person until October 12 next year.
From the start of the extension on October 5, 2010, banks and finance companies will be split into two tiers, with banks to be charged 0.5% on assets and finance companies 1.2%. It is estimated SCF will have to pay $20 million to $25 million to remain in the scheme after the change, Mr Timms said.
If its S&P BB+ rating falls below BB, SCF will no longer be eligible for the scheme.
Mr Timm's said while SCF had obviously supported the scheme's extension, no-one expected to be able to sign up until next year.
S&P said SCF's liquidity levels were "modest" for a various reasons, including the long-time sticking point of the estimated $130 million SCF had lent to companies closely associated to Mr Hubbard, which S&P wanted reversed, having said this week the related-party entities were "of uncertain credit standing".
ISSUES FACING SCF
• S&P downgrade to junk (non-investment) status in August.
• Threat of further S&P downgrade; possible exclusion from extended Government guarantee scheme.
• Possibility $US100 million facility called in by US syndicate
• Cost of entering Government's extended guarantee scheme estimated at $20 million to $25 million.
• Bad loan provisioning up from $8 million to $50 million; could be revised upward.
• Ability to reduce related party lending down from estimated $130 million.
• Delays to releasing revised prospectus mean SCF not able to generate funding.
