SCF still on track for cash injection

South Canterbury Finance is still in the process of completing the consents for an injection of $37.5 million in new equity from Southbury Corporation and Torchlight Fund No 1 and replacing a $75 million funding facility from New Zealand Credit Fund.

In a letter to the finance sector, chief executive Sandy Maier described the targets and timetable set by Standard and Poor's to retain South Canterbury's credit rating as unrealistic and said chasing them would have destroyed value for stakeholders.

Last week S&P lowered South Canterbury's long-term rating from BB to B+ with a credit watch outlook, while its short-term outlook was affirmed at B.

Targets set by S&P included reducing October debenture maturities by $50 million, increasing cash reserves by more than $150 million, realising assets and sourcing additional equity.

Maier said S&P questioned whether South Canterbury had sufficient liquidity to meet its debenture and bond obligations, but he said it was an area that had been given priority and where progress had been made. If the rate of debenture reinvestment and new investments continued at current levels, "there is every prospect that the wall will have been substantially demolished before October arrives".

South Canterbury faced the prospect of $1.13 billion of debentures and bonds maturing during the year, but Maier said smoothing the debenture maturity profile had progressed well.

"At May 31, the holders of $132.9 million of debentures scheduled to mature in coming months had accepted the company's offer to reinvest in new debentures with longer dated maturities."

By rolling the maturity dates over early, Maier said refinancing with new funding from other sources was not required.

Torchlight, a company associated with Christchurch businessman George Kerr, has taken up its option of increasing its subscription in South Canterbury's parent company, Southbury, from $22 million to $37.5 million. Maier said Southbury would use the proceeds to subscribe for new, ordinary equity in South Canterbury, which would take total equity to about $238 million.

Since January, South Canterbury has realised more than $200 million from its receivables book which has boosted its cash position.

In his letter to brokers, Maier said he hoped that recent "good news" would build the momentum of debenture reinvestments. He said "our objective is to turn around the company so that it can continue to be a viable business".

- Otago Daily Times