Mystery SCF bidder revealed

A New York-based investment fund bid for the company. Photo / Sarah Ivey

Former South Canterbury Finance chairman Allan Hubbard wants the Government to front up to the public about a bid it received from a New York-based investment fund which he claims would have reduced taxpayer liability for the failed finance firm to $400 million.

The Government placed South Canterbury Finance in receivership on August 31 last year, costing taxpayers close to $1.9 billion to pay out the firm's debenture holders and depositors - a figure which will be substantially reduced as the firm's assets are sold.

Primavera Capital Group - which is said to be the investing arm of a private trust with links to European royalty - was disclosed as the mystery bidder in a letter Hubbard sent to Commerce Minister Simon Power on January 20.

In the letter, Hubbard reveals he assisted Primavera to submit a bid to acquire all of South Canterbury Finance, including its associated companies Dairy Holdings, Scales Corporation and Helicopters NZ.

Hubbard says the bid would have been made via Southbury Corporation and would have allowed for SCF's preference shareholders to be included in the offer as well as Aorangi Securities, which was subject to statutory management by that time.

Hubbard sent a copy of Primavera's proposal to Power. He said the offer would have required the Crown to contribute $400 million but Primavera would have assumed responsibility for the debentures and the deposits that the Crown had guaranteed. Full settlement was to take place before September 30, 2010.

The Business Herald understands Primavera had offered to introduce $300 million new equity. There would have been a $700 million guarantee back to the Crown. The upshot is the Crown's total liability would have been reduced to $400 million assuming the finance firm had managed to flourish as a going concern.

But Finance Minister Bill English made clear that he was not prepared to entertain any bid which would have resulted in downside risk for the Government.

Hubbard said "for some reason" the Crown rejected the offer, choosing to instead accept responsibility for repaying SCF's debentures and deposits of around $1.9 billion and placed it in receivership.

He wrote that while it is "probably too early to evaluate the residual cost of these actions to the Crown", his own calculation, after allowing for receivership costs and the sale of the firm's assets, was likely to produce at most $900 million with an ultimate loss of up to $1 billion against the $400 million, if the Primavera offer had been accepted.

"Should not these facts be disclosed to the New Zealand public?" wrote Hubbard.

Interest had been expressed from other bidders such as Australia's Shearwater Capital - which was also initially introduced by Hubbard, and Sydney-based businessman Duncan Saville who wanted to acquire SCF's "good bank" as a going concern.

The Business Herald has confirmed that Christchurch-based Frontier Capital acted as Primavera's New Zealand intermediary during the negotiations.

Deloitte and Simpson Grierson had also been involved at the initial stage.

Frontier Capital's Tim Fitzgerald, a former HSBC New Zealand Treasurer, would not comment publicly about the detail of the negotiations. But sources told the Business Herald it did rouse some opposition from within Treasury because it was seen to be a "Hubbard-sponsored" bid and would have resulted in the preference shareholders getting some of their value back.

"Your action in repaying the debentures and deposits so promptly was certainly appreciated by the local community," Hubbard wrote to Power.

"But if the offer was accepted their investments would have been fully protected and all at a very significantly less cost to the Crown and New Zealand taxpayers."