Auditors tag SCF accounts on funding worries

Thursday 1st October 2009

Auditors for South Canterbury Finance have tagged the troubled Timaru finance company's accounts, warning that if looming US dollar debt and private debenture funding is not secured, the viability of the business is uncertain.

Under a headline "fundamental uncertainty - going concern", Woodnorth Myers & Co. identified the downgrading of SCF's credit rating and its impact on $153 million of US private placement funding, and its ability to issue a new prospectus to allow debt-raising in New Zealand as critical to the company's financial standing.

"The directors believe that the group has a range of options available to it, and consider that these matters will be satisfactorily resolved," the audit report said. "The validity of the ongoing concern assumption on which the financial statements are prepared may depend on the successful conclusion of these matters.

"If the matters were unable to satisfactorily resolved, this could have a significant impact on the liquidity of the group, and the recoverable amount of certain assets."

A delay in preparing and having a new prospectus approved "could have a significant impact on the company's liquidity," SCF said in notes to the financial statements, which recorded a net loss for the year to June 30 of $49.57 million, a turnaround of almost $110 million on last year's $60.78 million net profit.

The loss is less than the preliminary unaudited loss of $69 million, the company previously reported.

SCF was one of the survivors of the 2007 and 2008 shakeout in the finance company sector, but has more recently become entangled in related party transactions which have seen cornerstone shareholder Allan Hubbard forced to inject equity of his own to stabilise the company, whose loss this year was the first since the Great Depression of the 1930's.

Standard & Poors downgraded SCF to a BB+ credit rating in August, and a little over a month later was placed on negative watch. The downgrade triggered an "event of review" for SCF's for both its banking facility and the US private placement funding.

Access to the banking facility has been frozen for the present, and "may be withdrawn if events leading to the review cannot be addressed satisfactorily", the company's financial statements say.

"US investors may request repayment of funds and the company is currently in discussion with those investors" while it also considers a major restructuring taht could wee new capital introduced and the appointment of new directors.

An announcement on these plans is expected in mid-October.

The US investors's funds currently mature between 2013 and 2015, but they have three months from the review of events to request accelerated repayment. The accounts show USPP funds standat a total of $153.7 million, while there has been a dramatic jump in liabilities maturing in the next three years, even before possible early repayment to USPP investors.

Debt maturing in the next four years totals $1.1 billion, compared with $536 million a year ago, with $609.64 million ($385.1 million a year earlier) maturing within 24 months.

Shares in associated companies were valued at $87.73 million in the accounts, against $150,000 in the previous year, and a $35 million writedown in the value of a property trust with New Zealand and offshore assets is also disclosed. A $55.95 million charge for impaired assets has been included, based on total individually impaired assets with a carrying value of $305.2 million, compared with $61.7 million a year earlier.

Businesswire.co.nz

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