Southern fortunes were left hanging in the balance yesterday with South Canterbury Finance teetering on the brink of receivership.
The company is understood to be in last-minute talks with the Government and overseas investors to avoid what would be New Zealand's largest corporate failure in decades.
A government guarantee over South Canterbury means taxpayers would be liable for at least $900 million if the company fails.
Even if a crash is averted, and the Government puts money directly into South Canterbury, taxpayers would face a loss of at least $250 million.
Timaru millionaire Allan Hubbard (82) is founder of South Canterbury Finance, but has stepped back from a hands-on governance role as a new board seeks to complete a critical recapitalisation package.
Sources believe new equity partners, offering a much-needed cash injection, want the Government to also take a multimillion-dollar stake.
South Canterbury shares were placed on trading halt yesterday morning, with expectations a new equity partner was about to be unveiled, but there was no further news by the close of the stock exchange.
South Canterbury chief executive Sandy Maier did not return calls yesterday. A source close to the company said the Government, which has already made a $954 million provision under its guarantee scheme, would lessen that overall exposure if it purchased a stake.
"There are still two equity parties in negotiation this weekend, but they need the [Government] commitment," the source said.
Sources said the Government effectively faced a choice between injecting capital now to buy those assets - likely to cost it about $600 million - or letting a Tuesday deadline pass with the risk the whole company would fail.
For its $600 million investment, the Government would receive assets worth closer to $350 million, the source said. That would mean a $250 million loss for taxpayers.
However the Government is likely to face a bigger loss if the company fails.
Receivership would trigger a call on the Government's wholesale deposit guarantee to cover not only $1.2 billion in retail debentures but hundreds of millions more in bonds held by other investors.
A spokesman for Minister of Finance Bill English was contacted but declined to comment on speculation the Government was considering taking a stake, saying it remained policy not to talk about individual companies under the Crown's extended deposit guarantee scheme.
Cabinet is understood to be scheduled to consider South Canterbury's position on Monday.
If South Canterbury fails to attract the cash it needs, it could be placed in receivership by trustees on Tuesday, when a waiver of trustee conditions expires.
South Canterbury was stung badly by about $200 million in property-related losses and subsequent pressure on its reinvestment rates and ratings downgrades. It urgently requires new equity to shore up its ability to repay investors on time.
One supporter of Mr Hubbard told NZPA that South Canterbury's board rejected one offer received on Thursday for about $350 million, in favour of an offer of $175 million.
"The higher offer, which was significantly higher than the offer the board of South Canterbury Finance accepted, would have been very beneficial to South Canterbury Finance and its investors," said Paul Carruthers.
Despite being credible, the higher offer was rejected with not much consideration, but was on the table at the insistence of Treasury, he understood.
In a separate development yesterday, statutory managers delivered a harsh report on Mr Hubbard's other, unrelated, business entities.
Two Hubbard-companies and seven trusts were placed under statutory management by the Government two months ago and all funds and interest payments to investors were frozen. A separate Serious Fraud Office inquiry was launched and is continuing.
Of the two companies - Aorangi Securities and Hubbard Management Fund - and seven trusts, Government-appointed manager Grant Thornton yesterday highlighted issues of free loans, unpaid interest, accumulating losses, poor governance and claims that cash balances did not exist as stated to investors.
"There is an alarming gap between the income that Aorangi [Securities] is presently receiving from its loans and investments and the amount it needs to pay out to its investors," it said.
While there is hope of a small amount of cash being made available in October to stressed Hubbard investors, Grant Thornton warned it could be several years before all affairs were settled.
- The New Zealand Herald and NZPA
