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The Government this morning paid out $1.7 billion to cover investor losses - about $150 million more than it was required to - as New Zealand's largest locally owned finance company South Canterbury Finance was placed in receivership.
In a notice to the sharemarket this morning Allan Hubbard's $2 billion company said it had been unable to complete a recapitalisation and restructure and as a result Trustee Executors which oversees the interests of South Canterbury's 35,000 investors. had called in receivers Kerryn Downey and William Black of McGrathNicol.
South Canterbury has $1.2 billion in retail deposits and a further $350 million in other securities that are covered by the Government's Retail Deposit Guarantee.
However Treasury this morning said it had already paid $1.7 billion to Trustees Executors and when an up-to-date register of investors was available, the Crown and the Trustee would arrange prompt payment to everyone on that list.
"We expect an orderly and prompt payment to South Canterbury Finance depositors and stockholders," acting Treasury Secretary Gabriel Makhlouf said.
Makhlouf said Treasury's arrangement with Trustees Executors meant some depositors and stockholders who may not have previously been eligible under the guarantee would 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."
"Criteria relating to citizenship and tax residency do not apply and depositors and stockholders will not be assessed using those criteria."
South Canterbury chief executive Sandy Maier told a press conference this morning South Canterbury Finance was in trouble as early as last year.
"The company has been the subject of acute problems since I came in on December 23."
"When I came in nine months it was a turnaround effort. It was an attempt to put things on the rails and correct things that were not right. A great deal has been achieved over the last nine months in terms of strengthening management, strengthening governance, collecting a lot of money out the loan portfolio."
"It's been a critical situation for a long time."
Sandy Maier said the company had been working until 4 this morning with two parties to secure funding but could not come to prices and terms within a timeframe.
"We never felt we had an offer that reflected the price that made up for the detriment of value."
Maier said some of the problems had turned out to be deeper and more intractable than anyone could have imagined.
The time pressure of having to fund such a large entity every day had been difficult, while the statutory management had had an impact on popular perception, he said.
"All of these factors combined have been a heavy weight on us."
While there were few technical connections between South Canterbury and those business interests placed under statutory management, there was a powerful "brand connection", Maier said.
"I'd be lying if I didn't say to you that it's had an impact in the confidence sense and an entity like South Canterbury...operates as creature of public confidence."
However Mr Maier wouldn't say the decision was unjustified.
"We just don't know yet."
The company welcomed Treasury and Trustees Executor's arrangement for debenture, deposit and bond holders to be repaid in full regardless of their eligibility under the Crown Retail Deposit Guarantee Scheme.
"The government has done quite a remarkable thing," Maier said.
Maier said receivership was inevitable when it became clear that negotiations to inject fresh capital into the business could not be completed by today's deadline.
"Receivership is disappointing and we were working very hard up to the last minute to avoid that outcome."
"At the heart of South Canterbury Finance there is a sound business supporting many successful small and medium sized enterprises. That is the core business of South Canterbury Finance and a real contributor to the economic well being of that sector of the economy."
South Canterbury Finance's collapse was inevitable, said one leading business commentator.
New Zealand Herald columnist Brian Gaynor of Milford Asset Management said the company had been on its last legs for some time.
"This was a sick company. You are better to face reality in a situation like this, rather than try to keep something going that really was on its last legs for some time.
"South Canterbury Finance was not a very well-run company and it made a huge amount of very bad loans and inevitably that comes home to roost. And to me this is reality. This is what needed to happen."
"We are all sad that it has happened, but it is probably the realistic approach rather than the government putting more money in the hope things improved."
While the Government has paid out $1.7 billion this morning its net loss after the company's assets are sold are likely to be about $600 million Prime Minister John Key said yesterday.
WITH NZ HERALD STAFF