Hubbard pulls out wallet to bail loans

A "downward spiral" in the troubled property market has prompted South Island businessman Allan Hubbard to tip $40 million of new capital into South Canterbury Finance to offset loan losses.

He has pledged further support if required.

Timaru-based South Canterbury Finance, principally owned by Hubbard through his company Southbury Group, said it had taken a $58 million provision for non-performing investments and doubtful property assets for the June 2009 year.

As a result the company expected to report a pre-tax loss of about $37 million, against the previously forecast $21 million gain.

Hubbard, whose net worth has been estimated at $650 million, injected $40 million of new capital into the business and had "undertaken to provide further support if required, to counter the impact of any balance-sheet writedowns of property loans".

South Canterbury chief executive Lachie McLeod told the Herald that additional pressures in the distressed property sector had spurred the company to take a close look at its lending there.

"It's certainly been a downward spiral in that area in the last three months.

"There's a lack of buyers and activity. It's basically gone stagnant."

The loans provisioned against range from small residential developments to high-profile projects including Dunedin's Grand Hotel. McLeod said there was also a loan to a Fijian development.

Property loans account for 23 per cent of South Canterbury's loan book. The company has total assets of $2.3 billion.

While the company has been the subject of market speculation about its exposure to the dairy sector, McLeod said none of the impaired loans were to dairy farmers.

"We are certainly in the market to help dairy farmers but at present that's just a small portion of our book."

In a statement, Hubbard said it was disappointing for the company to report its first bottom-line loss since 1934.

The environment was difficult due to lower confidence of lenders, lack of exit strategies and sale options.

"However, South Canterbury Finance will continue to seek lending opportunities in the next year to backbone businesses and industries.

"South Canterbury Finance is a sound, profitable business and I am committed to supporting South Canterbury Finance and its 45,000 investors who have loyally supported the group for 83 years," Hubbard said.

The company expects to be back in the black to the tune of $18-22 million in the 2010 year.

McLeod said there was some chance that part of the $58 million in provisions would be recovered as the market improved.

Market commentator Arthur Lim said given the recent speculation about the company, yesterday's announcement was good news. The prospect of a key institution like South Canterbury getting into trouble "doesn't bear thinking about".

"The issue for them now is whether this is sufficient in terms of capital injection," he said.

"But what does show is that South Canterbury does have the benefit of a shareholder who actually has a few more bob to chuck in there, compared to the Hanovers and Bridgecorps of this world."

SEARCH FOR NEW EQUITY

South Canterbury Finance is considering a new cornerstone investor, a merger or an initial public offer within six months as it positions itself for life without Allan Hubbard.

Announcing $40 million in new capital from the chairman and principal shareholder yesterday, the company said it was "investigating other external sources of new equity, to continue to strengthen its position".

Chief executive Lachie McLeod said there was "a lot happening in that area ... basically we see it as an opportunity over the next six months to strengthen the group and start the succession process."

With his personal net worth estimated at more than $600 million, Hubbard's ability to support South Canterbury is seen as one of the company's key strengths. However he is now in his eighties.

McLeod said sources of equity included private investors, an initial public offer or mergers and acquisitions. "With the brand, Allan and our size, opportunities come to us every month ... we want to start looking at some of these."