The beleaguered southern lending giant is considering a private placement of up to $75 million, the possible sale of widespread dairy farm assets and reduction of worrying related party lending by up to $50 million.
Asset sales could include almost 80 farms, mainly dairy, across the South Island, under the control of Dairy Holdings Ltd (58) and South Island Farm Holdings (20), a move which could undermine dairy farm values.
In its long awaited prospectus for new debenture securities, re-released yesterday, came confirmation the finance company intends to apply to participate in the Government's extended deposit guarantee scheme, which could cost up to $25 million.
It has also for the first time confirmed payment of a $US15 million ($NZ19.8 million) penalty, in the form of a refinancing fee, to a US lender which is calling in $US100 million ($NZ132.6 million) in loans, plus further unspecified interest charges.
Craigs Investment Partners broker Peter McIntyre said the sweeping changes signalled in the prospectus for the company, including payment of about $50 million of $130 million in related party debt owed by companies in which chairman Allan Hubbard has interests, was to "appease" international rating agency Standard & Poor's and forestall any moves towards another credit downgrade.
"This [news] is a major part of the overall recapitalisation plan, and to some extent to appease S&P and concerns about a further rating downgrade," Mr McIntyre said Potential sales of so many southern dairy farms was likely "to send a shudder" through the South Island dairy sector, he said.
"South Canterbury would be reluctant sellers, which would put [downward] price pressure on farm values," Mr McIntyre said.
South Canterbury chief executive Lachie McLeod said South Canterbury had "advanced plans" to recapitalise and "fully restructure" its business plan.
Parent Southbury Group proposes to seek between $40 million and $75 million by private placement to selected investors, plus a wider capital raising following the private placement - but the latter proposal was without details yesterday.
Restructuring could include partial or full sale of Dairy Holdings Ltd, a "high quality asset" of 58 dairy farms and milking more than 42,000 cows, Mr McLeod said, and also South Island Farm Holdings, with shares in 20 South Island dairy and other farms.
"In the medium term, the the company is likely to seek to divest its holding in South Island Farm Holdings to ensure South Canterbury is able to meet proposed Reserve Bank capital requirements for non-bank deposit takers," Mr McLeod said.
The $US15 million penalty is to be paid through South Canterbury's parent Southbury Group Ltd, headed by Mr Hubbard, with no obligation to South Canterbury on the payment.
Having last week negotiated a reprieve to pay back the US consortium's $US100 million during the next five and a-half months, South Canterbury's re-release of its stalled mid-August prospectus after a rating downgrade, will be closely watched by the markets and investors.
Investor funds were placed in trust in mid-August and those investors will now be asked whether they want to continue and participate.
Mr McIntyre highlighted that incoming funds through debentures "were crucial to help fund the US private placement being repaid".
"This is the first step. Time is of the essence to South Canterbury now, so they can recapitalise over the next five months," Mr McIntyre said yesterday.
Mr McLeod said the $US100 million capital, interest payments, and refinancing fee would all be paid in separate instalments, with the last of each due on March 31 next year.
Mr Hubbard said yesterday that for South Canterbury to be accepted into the extended guarantee scheme, until October 12 next year, the company had to meet "certain eligibility criteria" and be accepted for participation by the Secretary to the Treasury.
"We have had to attend to a number of matters in recent weeks which caused delays in the registration of the prospectus," Mr Hubbard said in a statement.
While staying in the Government's deposit scheme will buoy investor sentiment, South Canterbury must maintain its already pressured Standard & Poor's credit rating. If that was downgraded further it would exclude South Canterbury from the Government scheme. It will have to pay an estimated $20 million to $25 million to stay in the scheme, Mr McIntyre said.
"It is an expensive exercise. There will be scrutiny of the [amount of] debentures taken up because there is about $1 billion maturing during the next 12 months," Mr McIntyre said.
Mr Hubbard said there would be further announce- ments made as South Canterbury "evolve our restructuring and recapitalisation plans", including high level management changes.
Yesterday's debenture securities offered a range of maturity dates with yields of up to 8% and those which mature, or become payable on or before October next year, would be covered by the Government scheme, Mr Hubbard said.
