South Canterbury Finance's auditors have raised concerns there are uncertainties surrounding the giant southern finance company's funding, liquidity and capital as it strives to regain traction with an up to $1.25 billion capital-raising programme.
While South Canterbury chief executive Sandy Maier does not agree with Ernst & Young's concerns, citing "differences of opinion" over liquidity, funding and capital-raising, he said in an interview yesterday investors had to see transparency in the "complex" accounts of South Canterbury.
In an audited six-months-to-December report outlining increased impairments contributing to a $198.6 million loss for the 85-year-old company, auditors Ernst & Young delivered an "unqualified" report, albeit raising several concerns in the process.
The firm said the directors' "assumptions and estimates" South Canterbury would continue as a going concern contained "uncertainties" regarding the "adequacy of funding and liquidity; sufficiency of capital, and compliance with regulatory requirements" in its trust deed and trustee waivers.
Mr Maier said yesterday "I'm happy to let it stand [funding and liquidity comment] because people needed to know the full extent - they needed transparency. I for one wanted a thorough [accounting] job done."
Ernst & Young said: "The interim financial statements do not include any adjustments that would result should the directors' estimates of the amount and timing of the cash flows from the impaired advances prove inaccurate."
Mr Maier said the recent week's announcements, with after-tax losses consecutively edging up towards $200 million for six months to December, were "necessary but painful house-cleaning", but is adamant the company's "balance sheet is purged and restored".
He said the February acquisition of profitable Helicopters (NZ) Ltd (100%), Scales Corp (80%) and Dairy Holdings Ltd (33.6%) boosted the company's's capital position by $152.5 million of new equity.
South Canterbury has said more than $200 million of new equity has been booked by the company since December.
Mr Maier said this injection countered the $198.6 million after-tax loss and "South Canterbury was back to zero, to start again".
With $1.1 billion due to debenture- and bond-holders during the coming seven months, it appears crucial for South Canterbury to put the recent losses of $200 million behind it, complete its restructuring smoothly and with no more surprises and come up with much of the $1.25 billion it announced it is seeking from a prospectus launched on Monday.
Craigs Investment partners broker Peter McIntyre said the uptake by new investors for $1.2 billion in registered secured debentures covered by the Government retail deposit guarantee scheme and a further $50 million in unsecured, non-guaranteed deposits, may mirror existing investor roll-over rates of 50%-55%.
"I'd like to see that [55%] level as a minimum," Mr Maier said, saying the roll-over rate on existing investments was "slightly higher".
On the $1.1 billion due in debentures and bonds in the next seven months, Mr Maier said it was seen "as a hurdle of sorts", but with South Canterbury being included in the Government's's extended guarantee last week, it made investment more attractive.
He said South Canterbury had more than 40,000 loyal `warm nose" investors to draw on and with the demise of other finance companies, new "cold nose" investors would be attracted by the Government guarantee.
"The next hurdle is to get out of the Government guarantee. We don't want to be a ward of the state," Mr Maier said.
• In a clarification to the markets yesterday, following some media comment, South Canterbury said the current and extended Government guarantee applied to all existing investors in first ranking secured debenture stock and to all investors considering making an application for some of the $1.2 billion in first ranking debenture stock, as outlined in Monday's prospectus.
Existing unsecured depositors are covered by the current and extended Government guarantee, but unsecured deposits received on, or after, April 12 were excluded from the current and extended guaranteeAt December 2009, funds provided by debenture holders and unsecured depositors totalled $1.78 billion, of which $1.76 billion is first ranking debenture stock, while unsecured deposits comprised $14.6 million, or less than 1%, of the total.
