South Canterbury awaits lifeline from extended guarantee

South Canterbury Finance remains on edge as it awaits the outcome of its application for extended guarantee from the New Zealand government.

The company has a BB rating which means it has the minimum rating required to qualify for the guarantee but can't afford any delay because its rating is on Credit Watch with negative implications. A Credit Watch negative means a one-in-two chance of a downgrade within the next three months.

It is imperative for South Canterbury to obtain the extended guarantee because it has NZ$491 million due to be repaid by June 30, and a further NZ$640 million due for repayment prior to the expiry of the current deposit guarantee scheme.

As of February 10, the company had cash deposits of NZ$79 million and realisable investments of NZ$12 million to assist in meeting its repayment obligations. To further boost its liquidity, the company raised NZ$26.4 million via issue of ordinary shares to Southbury Corporation.

The company is currently in the process of restructuring and recapitalising its business. Among the options being considered is a divestment of a range of non-core assets over the next six to 12 months, including reducing shareholdings in Dairy Holdings Limited.

The company is also planning to refocus its lending operating on its traditional business, plant and equipment, consumer and rural lending, and wind down and divest its exposure to property development lending.  It will also seek to reduce related party lending by up to NZ$50 million and review and implement further changes to its lending and credit approval processes.

South Canterbury is currently offering an attractive seven per cent rate on five-month debentures and has a special offer of eight per cent for debentures maturing on October 11.