NZ finance company collapses, receivers appointed

WELLINGTON, New Zealand

New Zealand's second biggest nonbank finance company, South Canterbury Finance, was put into receivership Tuesday after the troubled lender failed to pull together a bailout program that could keep it afloat.

The South Island-based private company told the New Zealand Stock Exchange, NZX, it had been unable to complete a recapitalization and restructure with new backers to allow it to remain compliant with financial covenants under its trust deed.

SCF owes investors about $NZ1.6 billion ($1.2 billion), mostly lent on to small businesses and farmers in the South Canterbury region of South Island.

After a nine-month battle to restructure the company's affairs, SCF chief executive Sandy Maier said he had worked through the night but had failed to secure new capital.

Under a government-backed retail deposit guarantee scheme, investors' money, including interest due, is protected despite the company failure.

"The Treasury will today (Tuesday) pay $NZ1.6 billion to the Trustee for South Canterbury Finance," spokesman Angus Barclay told The Associated Press in an e-mail statement.

Acting Treasury Secretary Gabriel Makhlouf said that the payment ensured that "all depositors and stockholders on South Canterbury Finance's register will be repaid" in an orderly and prompt manner, despite the company's collapse.

The scheme provides a taxpayer guarantee that will cover the $NZ1.6 billion the firm owes to about 35,000 depositors and debenture holders, he said in a statement.

About $NZ600 million of the total is tied up in "toxic" loans which the government guarantee will also cover.

At least 29 nonbank finance companies have collapsed in New Zealand since the start of the world financial crisis in 2008. SCF's collapse will be the eighth time a finance company has triggered the guarantee scheme.

Prime Minister John Key said government had made a $NZ900 million provision to cover finance company collapses under the guarantee scheme and he was confident that would cover SCF's liabilities.

A spokesman for Finance Minister Bill English said the government was moving to quickly pay depositors, minimize costs to taxpayers and "ensure minimum disruption to the wider economy."

By midday Tuesday, the New Zealand stock market's leading NZX50 index was down 0.5 percent or 15 points at 3021.95, after closing Monday at 3036.81.

The Kiwi dollar also slipped on the news, down to $0.7029 at midday from its $0.7057 level ahead of the announcement.