Last-ditch bid under way to save Provincial

Thousands of investors could be left out of pocket if a last-ditch attempt to pull Christchurch-based Provincial Finance out of receivership fails.

Chairman David Lyall said trustee Perpetual Trust had placed the company in receivership despite efforts by himself and chief executive John Edilson to find "alternative solutions".

The pair had recently offered to inject a further $16.5 million into the company and sell $25 million of its property loan portfolio to South Canterbury Finance.

It is understood South Canterbury Finance chairman Allan Hubbard met industry participants, including other finance companies, in Christchurch on Thursday to try to find a way to assist the stricken company.

A finance company executive said a reconstruction package had been put to the receivers and trustee. "How that's been received I'm not sure."

Receiver John Waller, of PriceWaterhouse Coopers, said the company was not yet dead.

Lyall, Edilson, Perpetual Trust and Hubbard were in ongoing discussions aimed at putting together a package to recapitalise the company.

Yesterday, Perpetual Trust chief executive Peter Baynes said breaches of covenants and ratios in Provincial's trust deed became apparent in early April. Perpetual was also concerned at the adequacy of Provincial's provision for doubtful debts.

Provincial's shareholders had since then made "strenuous efforts to address the problems".

"But we have formed the view that the best course to protect the interests of the debenture stock holders, who have invested some $300 million with Provincial and whose interests we represent, is to place Provincial into receivership."

Provincial has about 14,000 investors, about 28,000 loans, mostly to car buyers, and has about 80 staff employed in offices in Christchurch, Auckland and Wellington.

Provincial's failure, three weeks after motor vehicle finance outfit National Finance 2000 shut, was foreshadowed last month when it withdrew its prospectus and declined new business.

The company is expected to report a $36 million March year net loss after providing for $85 million in bad and doubtful debts.

Waller said he and colleague Maurice Noone would write to depositors late next week with an initial view on likely returns. Investors could stay fully informed via PriceWaterhouse Coopers' website.

Lyall believed Provincial's investors would get most of their money back. He was clearly disappointed by Perpetual's decision to pull the plug on his business.

He and Edilson had injected $27 million into the company over the last six months after mortgaging properties and selling assets "so this was never something we were running away from".

The company had expanded too rapidly into motor vehicle finance and experienced a higher than anticipated level of non-performing loans. a slowdown in the sale of new and used cars hurt recoveries.

He did not believe his firm's failure was an indicator of wider difficulties in the finance company sector.

But Fundsource general manager Binu Paul said Provincial's failure was a worrying sign.

"If someone like Provincial who's had deep pockets and commitment to the business cannot withstand an internal issue like this how well are other companies who may have problems positioned to do that?"

Nevertheless it was important that investors in other companies did not panic "but have greater caution and review of their investments".