South Canterbury auditors raise concerns

The auditors of South Canterbury Finance say there are fundamental uncertainties over the company's assumptions that it can continue as a viable business.

The audited accounts for the six months to December 31 were released yesterday as part of a new prospectus from South Canterbury that aims to raise $1.25 billion from the public.

The finance company, which already owes investors $1.9 billion, is covered by the Government's existing deposit guarantee scheme and was recently accepted into the extended guarantee which rolls over on October 12 and finishes at the end of next year.

The Government guarantee means the taxpayer would pick up the bill to pay back investors if the company failed over the next 18 months.

South Canterbury was due to have filed its accounts with the New Zealand Stock Exchange on March 31 but did not get them in until late Friday.

The unaudited accounts revealed a $191 million loss but the audited figures put the loss at $198.6 million - $43.7 million worse than the company predicted in a preliminary report last month.

In its unaudited accounts, the company's directors said it had prepared the statements on a going concern basis.

"The group's directors and management have made an assessment that the group will continue as a going concern and they are satisfied that the group has the resources to continue in business for the foreseeable future."

The assessment was based on several estimates and assumptions, including a roll-over rate of 50 per cent of current debentures, attracting $380 million in new money over the next year and a capital injection of $80 million into parent company Southbury Corporation to allow it to buy some non-core assets from the finance company.

Yesterday, auditors Ernst & Young said it had concerns over the assumptions made.

"The auditor's concerns relate [principally] to the assumptions and estimates made by the board in relation to the adequacy of funding and liquidity, the sufficiency of the company's capital, the company's future compliance with regulatory requirements and the provisions of the trust deed, and the satisfaction of the conditional waivers granted by the trustee."

The auditor also warned the financial statements did not include any adjustments which might be needed should any of the issues identified eventuate.

"Such adjustments may include assets being realised at other than the amounts at which they are currently recorded in the interim financial statements."

The company might also have to provide for further liabilities that may arise, the company said in its accompanying letter.

The accounts also reveal South Canterbury Finance would have been in breach of a financial covenant in its trust deed for the past three months if it had not received a waiver from its trustee company, Trustees Executors, because of an increased provision for losses and impairments.

The company has been given until the end of next month to inject more money into the business.

South Canterbury chief executive Sandy Maier said the $22 million invested by George Kerr's Torchlight Fund would allow the company to meet the deadline.

He said the company was pleased to have its new prospectus registered and the six-months accounts behind it.

"The half-year results bring to account a wide range of impairment provisions on largely discontinued activities in the company's loan book."

Maier described the results as close to break even once restructuring one-offs had been taken into account.

South Canterbury will hit the road with a series of presentations on its prospectus over the next few weeks.

SOUTH CANTERBURY

* Wants to raise $1.25 billion through a new prospectus.
* $50 million of that would not be covered under the Government guarantee.
* Already has $1.9 billion from investors.
* Is covered under the Government's deposit guarantee scheme until the end of 2011.