Financial markets are becoming more confident that troubled South Canterbury Finance will survive its latest disappointing results, but much hard work lies ahead.
SCF yesterday released its audited group financial statements which showed a loss of $50.4 million for the year ended June compared to the preliminary unaudited loss of $69 million announced on August 28.
The reduction in the reported loss was mostly due to a foreign exchange gain of $19.5 million, an analysis of the income statement showed.
Other changes included an increase in interest paid in the year to $180 million from $135 million in the previous corresponding period (pcp), a $57.7 million allowance for impairment on advances ($8.6 million in the pcp), and a $35 million recognised loss on investments (nil in the pcp).
The reported profit of $50.4 million was also helped by a $13.9 million tax credit compared to $8.9 million of tax paid in the pcp.
In the notes to the report, restructured assets in the reported year rose to $61 million compared to $226,000 in the pcp and "other impaired assets" rose to $243 million compared to $59 million in the pcp.
Impaired assets are loans that borrowers have stopped paying interest on, in most cases.
SCF could be working with those borrowers to find a solution to repayment.
In some cases the unpaid interest is added to the loan.
Auditors Woodnorth Myers & Co gave the annual report an unqualified opinion, but did raise some issues regarding the company's credit rating downgrade and the related impact on the United States funding.
Future debenture funding also depended on the group successfully registering a new prospectus.
Craigs Investment Partners broker Peter McIntyre said much hinged on company's capital raising, due to be announced later this month.
Forsyth Barr and Harmos Horton Lusk have been appointed as advisers to assist in the restructuring of the group and the recapitalisation of SCF.
Mr McIntyre estimated the group needed to raise $200 million from a public float.
Being listed would give SCF access to alternative forms of capital other than debentures.
He expected SCF to follow the Marac model of moving towards gaining a banking licence and tidying up the related party loans, something which had caused concern in the markets.
"The recapitalisation is the key. The auditors alluded to that. The recapitalisation will take pressure off the banks, which are only prepared to lend to SCF up to a certain level."
SCF chairman Allan Hubbard had "deep pockets" and would work hard to ensure the survival of the company, Mr McIntyre said.
SCF had earlier planned to list on the NZX but had pulled out before the due date.
Asked who would support an SCF listing, Mr McIntyre said mostly those already invested with the company.
The Crown guarantee was still in place for SCF, which provided protection for investors until at least October next year.
The investment climate was better now than it was six months ago.
"In saying that... SCF will be working hard to get this across the line."
SCF would appoint new directors and investors would look at what skills they brought to the board before making a final decision on investing, he said.
The SCF preference shares were trading at 30c yesterday after being as high as 42c and as low as 25.5c in the past week.
Mr McIntyre said that showed where investors thought the value of the company lay.
Shares were issued at $1. The bonds due in 2012 were trading at a yield of 27%, the 2011 bonds were at 16% and the 2010 bonds, which were part of the Crown guarantee were at 7.75%.
While the group had to take account of significant losses and provisions on loans and investments totaling $122.9 million before tax, there were some encouraging signs.
The company was in breach of some covenants in relation to the $US100 million ($NZ140 million) private placement.
As a consequence, note holders now had the right to require repayment of the notes immediately, he said.
"SCF is in discussions with the noteholders seeking a favourable resolution to the position and will make an announcement upon resolution."
