SCF share price shows drop in confidence

Photo / Dean Purcell

South Canterbury Finance preference shares have hit a record low as the expiry deadline of a trustee waiver looms on August 31.

The value of preference shares, which raised $100 million four years ago for South Canterbury, is considered to reflect investor sentiment in a company's welfare.

South Canterbury has maintained that the company has never missed a payment of principal or interest and its wide-ranging restructuring would eventually restore value to the preferance shares.

After the surprise announcement of founder Allan Hubbard being placed under statutory management by the Government and the Serious Fraud Office launching a probe on June 20, the preference shares have slipped from 24c to a low of 9c during trading yesterday. They closed at 10.01c. The shares were originally issued at $1.

South Canterbury is not under statutory management and its depositors remain covered by the Crown's extended deposit guarantee scheme. However, the preference shares are not covered by the guarantee.

Craigs Investment Partners broker Peter McIntyre said the weeks ahead for South Canterbury were "critical" as it approached the expiry date of its trustee waiver.

"Either South Canterbury gets the new equity [partner] funding required to cover itself or another waiver extension, or worst case, the trustees won't let South Canterbury register a new prospectus," he said.

South Canterbury announced in early June it hoped to get a new equity partner on board, with industry speculation it was seeking $200 million to $400 million, but there has been no update.

The trustee conditions say South Canterbury "will seek to comply with this covenant by, if necessary, selling equity securities held by it, or raising additional capital".

The trustee waiver was sparked by a proposed separate equity injection by South Island businessman George Kerr's Torchlight fund of up to $37.5 million, but at May 31 the Crown consent for the transaction,under South Canterbury's Crown deposit guarantee, had not been obtained.

Had the Torchlight funds been available it would have shored up the trustees' requirement of South Canterbury maintaining a "risk-weighted asset covenant", which must not exceed 100 per cent of the book value of equity securities held compared with shareholders' funds. But South Canterbury's asset covenant stood at 136 per cent in late February.

The trustees subsequently issued a conditional waiver, then extended it until August 31, allowing South Canterbury to trade while being outside the risk-weighted covenant.

McIntyre said South Canterbury had to maintain a certain amount of equity within its business to comply with the risk-weighted asset covenant.

"That is why Torchlight were so significant to them," he said yesterday.

"That's why it's important South Canterbury find a suitable partner to inject further capital into their business."

- OTAGO DAILY TIMES