Treasury moved swiftly yesterday to assure payment to investors caught out by New Zealand's largest corporate collapse after South Canterbury Finance was placed in receivership owing about 35,000 investors $1.7 billion.
Having first guaranteed, and now agreed to pay out investors, the Government is first in line to get a return from the sale of assets, but estimates are that it could end up being $500 million-$600 million out of pocket.
Treasury's quick move to pay out both capital and interest will underpin confidence in the South Island economy, with thousands of investors now looking to reinvest elsewhere.
South Canterbury, valued in its entirety about $2 billion, had just $7 million cash on hand on Monday night to pay investors, but had never missed any interest payments, South Canterbury chief executive Sandy Maier said.
In an interview yesterday, he said he did not want to play down his "disappointment" over the company going into receivership.
But he also noted there would "be a massive infusion of liquidity into the South Island as everyone gets their dough ... and hopefully does wise things with that money".
Craigs Investment Partners broker Peter McIntyre said the Government had been "generous", in that it included payouts to those with more than $1 million invested, offshore investors and those using discretionary accounts overseen by advisers.
"Receivership may be better for the investors overall, as it will be managed in a more orderly manner, avoiding anything approaching a fire sale which would be [asset-value] destructive," Mr McIntyre said.
There was some public surprise interest was being paid alongside capital, but Mr McIntyre said all companies in the Government's present deposit guarantee scheme included interest payments, up to the date of failure.
As expected, Standard and Poor's did not downgrade New Zealand's sovereign rating over the deposit scheme's use because the Government had made provision on its books for $954 million to be available for finance company failures.
Nine months of attempts to recapitalise South Canterbury Finance came down to the 11th hour yesterday, but Mr Maier said the price offered for assets and attached conditions by three parties was not suitable.
He rejected speculation the Government help had been sought to bail out South Canterbury, saying he had not gone "running off to the Beehive", but had "always sought private-sector solutions of new equity".
Fifteen would-be equity partners had been whittled down to three, and while it had been decided on Monday to go into receivership, negotiations went on until 4am yesterday.
"We ran through the options to the bitter end.
"We had more liabilities than assets and precious little cash and it [receivership] was the timely and responsible thing to do," Mr Maier said.
With about 60% of South Canterbury's loan book in the South Island, those owing the company should expect receivers to move slowly to assess and call in debts in an orderly manner.
Mr Maier said despite Allan and Jean Hubbard shoring up South Canterbury with their own equity stakes during the past year, they and preference shareholders would be the "big losers" and it "looks like [their investment] will not come back".
Ordinary shareholders, principally Allan and Jean Hubbard through Southbury Corp and Southbury Group, plus investors holding $100 million of unsecured preference shares will miss out on payment under the Government's extended deposit guarantee scheme.
However, all other depositors and stakeholders will be paid out, including some not earlier eligible because of tax residency and citizenship criteria.
South Canterbury Finance announced through the New Zealand stock exchange at 9.32am yesterday it was going into receivership and Treasury transferred $1.6 billion to its trustees yesterday, plus another $175 million for preferential shareholders.
Treasury said "because the trustee has been nominated as the eligible creditor, some depositors and stockholders who may not have previously been repaid will now be repaid by the Crown".
"While this will incur an upfront cost, it is cheaper overall for the Crown because it facilitates immediate payout of depositors and avoids the need for the Crown to make future interest payments."
Crown-guaranteed institutions which have defaulted since the introduction of the Government's deposit guarantee scheme in 2008 are: South Canterbury Finance, Allied Nationwide Finance, Mutual Finance, Viaduct Capital, Vision Securities, Strata Finance and Mascot Finance.
