NZF considering recapitalisation

NZF Group has hired a specialist financial consultancy to assist in its recapitalisation after its key subsidiary NZF Money failed to obtain the minimum BB rating that is required to get the continued benefit of the New Zealand government guarantee for deposits.

NZF Money is the second deposit-taking entity this week that received a rating below BB from Standard & Poor's.  Yesterday, the company was assigned B/B long-term and short-term credit rating with a negative outlook. This follows a similar rating and outlook assigned to property development financier Vision Securities earlier in the week.

The ratings on NZF Money reflect the company's status as a wholly owned subsidiary of a weakly capitalised parent, NZF Group, S&P said in a statement, adding that it recognised vulnerability potentially affecting the company's liquidity over the coming 12 months and some large lending exposures relative to size.

The rating action came as no surprise to NZF Money, which had been flagged that the structure of the parent company would have a negative impact on NZF Money's rating.

In a statement, NZF Group managing director John Callaghan said, "S&P comments on the way NZF Group was structured has had an adverse impact on the rating of NZF and it was clear that NZF would very likely have received a higher rating if rated on standalone basis."

NZF Group is the management and holding company for a number of group companies, including, among others, NZF Money, which operates the property finance division; Finance Direct, which operates the consumer finance division; and NZF Homeloans and others, which operate the home loans division.

In asset terms, NZF Money or the property finance division was the second largest in the group after the home loans division. It had total assets of NZ$83.6 million as of September 30, 2009 compared with NZ$184.6 million of the home loans division and the group's NZ$301.6 million.  

The group's total equity stood at NZ$20.7 million while borrowings and other liabilities totalled NZ$280.9 million as of September 30.

The property finance division earned net profit before tax of NZ$1.3 million in the six months to September 30, compared with NZ$2.5 million earned by the home loans division. The group's profit came in at NZ$2.9 million.