KEY POINTS:
The $10 billion finance company sector faces the prospect of a squeeze on funding from "mum and dad" investors following Bridgecorp's failure this week.
Bridgecorp was placed in receivership on Monday owing 18,000 retail investors about $500 million after failing to make loan payments.
"Investor confidence in the
retail debenture-issuing sector will undoubtedly be negatively affected," said international ratings agency Standard & Poor's yesterday.
Last year, car finance firms National Finance 2000, Provincial Finance and Western Bay Finance failed owing a total of just under $400 million to retail investors.
That sparked what was widely described as a "flight to quality", with investors being more reluctant to roll over maturing investments into new ones and avoiding companies whose stability they were unsure of.
"One would expect given what we saw last time there will be a slowdown in the flow of new funds and for the smaller players the reinvestment rates will come off," said KPMG's deputy chairman of financial services, Godfrey Boyce.
Gavin Gunning, Standard & Poor's director of corporate and government ratings, said unlike last year's failures, Bridgecorp was in the commercial property sector rather than consumer lending, and was a bigger company.
"These two factors could have the most immediate impact on market confidence once they are understood by the investing public."
Standard & Poor's, which is a contender to provide mandatory ratings of New Zealand finance companies under new rules that come into effect in 2010, would "closely monitor market reaction" to the Bridgecorp default.
Those finance companies which were heavily dependent on particular financial advisers to distribute their debenture stock were likely to be squeezed hardest.
Investment adviser and Business Herald columnist Brent Sheather said that from a financial planner's perspective, "it would be pretty hard to sell anything that's called a finance company these days".
KPMG's Boyce said advisers would, at the very least, look for more information and transparency from companies.
However, he believed that after last year's failures, many firms had found alternate funding sources such as bank credit to meet funding squeezes.
Meanwhile, finance companies Dorchester Pacific and St Laurence said yesterday they were unaffected by Bridgecorp's failure.
Dorchester chief executive Andrew Walker said his company was "quite comfortable" with its current position.
Bridgecorp had held almost 20 per cent of Dorchester's shares until April this year, and managing director Rod Petricevic had unsuccessfully sought a seat on the company's board.
