The surprise announcement yesterday of the pending half-year loss comes at a time when parent Southbury Corporation, whose three major assets include South Canterbury, is preparing to list on the New Zealand stock exchange and wants to win investor and market support.
In the market update yesterday, new chief executive Sandy Maier said a "thorough review of the business" had been carried out and South Canterbury was cash-flow positive and retained the confidence of investors, financial intermediaries and its shareholder.
However, there was a need to make adjustments to earlier reported valuations of "certain items" and also valuation of its preference share investment in South Island Farm Holdings Ltd, which should have been at fair value rather than cost, under reporting standards.
"As a result of the further impairments and adjustments the company anticipates it will report a loss for the six months to 31 December 2009," Mr Maier said yesterday.
Craigs Investment broker Peter McIntyre said the announcement was "a major heads up" by Mr Maier, giving the market a "transparent, pre-warning of the loss ahead".
"Mr Maier is lessening any future surprises by bringing all the bad news to the surface," Mr McIntyre said.
He said that "on balance", while an initial public offering to raise capital was expected to be difficult for Southbury in the present investment climate, the business still maintained a group of quality assets.
"Investor appetite is still difficult to gauge at present," Mr McIntyre said.
In mid-January, Southbury Corporation, which directly or through subsidiaries owns 100% of the ordinary shares of South Canterbury Finance and Helicopters (NZ) Ltd and 79.7% of Scales Corporation, completed its first major capital raising as it moves towards an NZX listing.
It raised $27.5 million in a private placement of convertible notes, the first of two capital raising stages, with subscriptions from institutional and private investors.
The $27.5 million placement was arranged by Forsyth Barr and yesterday Mr Maier said a "further development" was investment bank Forsyth Barr having been mandated to source more funding to strengthen South Canterbury's balance sheet, but further details were not released yesterday.
Mr Maier said South Canterbury had seen several positives in recent months and during the historically quiet January an average of more than $1.7 million daily of new investment money flowed in while its retention rate of existing investors lifted to more traditional levels.
"South Canterbury Finance believes that this renewed confidence from its investors, and its large network of financial intermediaries, is due to a number of positive changes in recent months," he said, including the successful capital raising by parent Southbury Corporation Ltd.
Another positive was confirmation of the company's BB+ negative outlook rating by international rating agency Standard and Poors, and its removal from "credit watch negative".
Mr Maier said South Canterbury had filed an application to participate in the extended Crown retail deposit guarantee scheme, beginning on October 12, and if accepted South Canterbury would be able to offer a greater range of investment options.
Mr McIntyre said based on South Canterbury's $2 billion loan book, Craigs estimated it would have to pay $20 million to $25 million per year, or 1% of its book, to be in the Crown guarantee scheme, based on the present BB+ negative outlook rating.
He said Mr Maier would want to see this rating upgraded to BBB+ or BBB-, which would slash the requirement to 0.5% of the book, or $10 million to $12.5 million per year, to be in the guarantee scheme.
