SFL unlikely to be helped out by SCF

Troubled finance company, Strategic Finance, is unlikely to be bailed out by South Canterbury Finance, as suggested by some commentators.

It had been suggested that embattled South Canterbury Finance (SCF), which is in the process of restructuring itself, could consider a debt-for-equity swap with Strategic Finance Ltd (SFL), which on Friday was placed in receivership, but could be sold to an entity such as SCF.

Craigs Investment Partners broker Peter McIntyre said given SCF's financial state, in which it reported a $155 million interim loss due in part to exposure to property investments, it was unlikely to want to increase its exposure to the property sector.

SCF already qualified for the Crown Guarantee Scheme, which a deal with SFL could jeopardise, he said.

SFL trustee, Perpetual Trust, has appointed PricewaterhouseCoopers as receiver after rejecting two restructuring options by management and offers from third parties to restructure or buy its assets.

Its 13,000 investors were owed $417 million by the property company and, in a statement, Perpetual Trust head of corporate trust Matthew Lancaster said receivership was the best option for investors.

Mr McIntyre said SCF would also be observing the fallout following Allied Farmers last year spending $400 million taking over the assets of Hanover Finance and Hanover subsidiary United Finance.

While Hanover debenture holders received on average 78c for every dollar owed and United debenture holders about 90c, it has proved costly for Allied Farmers.

Standard and Poors has subsequently downgraded Allied National Finance Ltd's long-term credit rating to BB and its short-term rating to B, while the value of assets it took over substantially decreased from $396.2 million to $175.5 million due to writedowns, bad debts and interest adjustments under new accounting rules.

Allied Farmers also reported a worst interim result to December 2009 of $15.7 million, compared with $3.9 million a year earlier.

All of these have combined to reduce its share value to 7c.

Mr McIntyre said these would be pertinent reasons why SCF would stay clear of any involvement in SFL.

A report by Perpetual Trust said SFL had a loan book valued at $477 million when, in 2008, investors approved a moratorium to allow management time to find a way to repay principal and interest.

By December 2009 that loan book had fallen to $220 million and by January of this year it was less than 75% of SFL's liabilities.

The company's loan book has shrunk, but its annual accounts last June when it was valued at $326 million, give an indication of exposure.

Of that $326 million, the main loans were $110 million invested in Auckland, $46 million in Queenstown, $41 million in Australia, $42 million in the Pacific Islands and $20 million in Wellington.

Of that total figure, $139 million was for first mortgages, $144 million for second and $41 million for subordinated second mortgages.

SFL's loans were primarily for residential property which accounted for $185 million.

Tourism loans totalled $46.5 million.