Hubbard nexus hard to break

The driver of the downgrade in the credit rating of South Canterbury Finance is the appointment of outside managers to control the business affairs of the firm's founder, and until recently "president for life", Alan Hubbard.

A statutory management order applies to the business interests of Alan and Jean Hubbard. The order excludes South Canterbury. The order, however, does extend to another financier, Aorangi Securities, linked to Hubbard and which appears to be at the centre of an investigation by the Serious Fraud Office.

The institution's history and its investor profile reflect the firm's journey and the post-war growth ethos of the people of the South Island of New Zealand.

Too much of that history may be wrapped up in the reputation of Hubbard, and the worry is that it may be this latest event - rather than year after year of adverse news on the whole sector - that collects the energy to finish the firm.

Early in 2010 South Canterbury qualified for an extended guarantee on debentures from the New Zealand government, an arrangement extended to the end of 2011, and this is the principal prop of the firm's solvency.

The latest events matter a lot to the company. Loyalty towards Hubbard is one of the main reasons that depositors choose to invest.

South Canterbury itself admits that the statutory management move "may adversely affect the ability of the company to raise funds from the public given the long-standing relationship that Mr and Mrs Hubbard have had with the company and the public perception likely to be created by the appointment of statutory managers in respect of Mr and Mrs Hubbard."

Interestingly, in the amended prospectus issued yesterday morning, the company replaced the statement from President for Life Hubbard with a statement from the new chairman, Bill Bayliss.

S&P said the downgrade reflected its view that news surrounding Hubbard is likely to erode debenture investor confidence, which is critical to the company's ability to manage its liquidity. S&P also raised concerns that the company's recapitalisation efforts could be compromised or delayed.

Maier continues to look for solutions, starting with drawing cash into the business.

Asked if he will accept the (low) offer he received for the Helicopter and Scales assets, Maier said he would not, and added "We are still in the process of finding a single new investor for the group."

The decision may have to come as early as before the end of the month, when some waivers granted by the Trustees are due to expire. June 30 is also the end-of-year close.