South Canterbury Finance expects to retain its investment grade rating, with shareholder Allan Hubbard to complete an underwrite guarantee shortly.

This followed an announcement on Tuesday by ratings agency Standard & Poor's that it was placing the company's 'BBB-/A-3' rating on negative watch. That means there is a one-in-two chance of a downgrade in the next three months.

Chief executive Lachie McLeod said S&P had acknowledged the commitment of Hubbard to the group and the leading role the group played in supporting the New Zealand economy.

South Canterbury's intention to introduce new equity within the next six months, as announced last week, should provide further assurance for investors, and S&P, that the group remains in sound financial health, McLeod said.

Yesterday S&P credit analyst Derryl D'silva said S&P's CreditWatch action reflected its view that there was now an increased risk some non-performing assets could translate into lending losses ultimately.

South Canterbury's decision to shift from cash to higher risk and high-yield investments had increased its risk profile, weakened its liquidity, and increased its related-party loans, D'silva said.

On the positive side, the company had a sound business profile and a good geographical spread.

Last Friday, South Canterbury said Hubbard had injected $40 million of new capital into the business and had pledged to provide further support if needed.

- NZPA