20 October 2009 Scf Prospectus

     

     

SOUTH CANTERBURY FINANCE LIMITED PROSPECTUS NUMBER 60 20 October 2009

Issue of $500,000,000 of registered first ranking debenture stock and $50,000,000 of unsecured deposits

1   

TABLE OF CONTENTS PROSPECTUS PAGE NUMBER

CONTENTS 1.

Directorate and Advisers

4

2.

Chairman’s Statement

5

3.

Chief Executive’s Report

7

4.

Business Overview

11

5.

Management Discussion and Analysis of the Year to 30 June 2009

16

6.

Main Terms of the Offer

19

7.

Additional Statutory Information

23

8.

New Zealand Deposit Guarantee Scheme

30

9.

South Canterbury Finance Ltd and Charging Subsidiary Companies – Summary Financial Information

33

10.

Main Provisions of the Trust Deed

35

11.

Trustee’s Statement

43

12.

South Canterbury Finance and Charging Subsidiaries Financial Information

44

13.

Auditor’s Report

72

14.

Brief History of the Company

73

 

 

 

2

SECOND SCHEDULE INDEX (As required by Regulation 5(6) of the Securities Regulations 1983) CLAUSE NUMBER

PROSPECTUS PAGE NUMBER

1.

Main Terms of Offer

2.

Name and Address of Offeror

3.

Details of Incorporation of Issuer

23

4.

Guarantors

27

5.

Directorate and Advisers

5A.

Restrictions on Directors' Powers

6.

Activities of Borrowing Group

23-24

7.

Summary of Financial Statements

33-34

8.

Acquisition of Business or Subsidiary

27-28

9.

Material Contracts

24-25

10.

Pending Proceedings

25

11.

Issue Expenses

25

12.

Ranking of Securities

36

13.

a. Provisions of Trust Deed and other Restrictions on Borrowing

14.

19-22 Not Applicable

4 28

28 & 35-42

b. Trustee's Statement

43

Other Terms of Offer and Securities

29

15-32. Financial Statements (and Associated Notes to Accounts)

44-71

33.

Places of Inspection of Documents

23, 25 & 42

34.

Other Material Matters

35.

Directors' Statement

29

36.

Auditor’s report

72

25-26

This Prospectus has been registered after 1 October 2009 but before the close of 30 June 2010. In accordance with regulation 52 of the Securities Regulations 2009, South Canterbury Finance Limited (the “Company”, or “South Canterbury Finance”) has elected that the Securities Regulations 1983 apply to its offer of Stock and Deposits under this Prospectus. This Prospectus is in respect of South Canterbury Finance and its Charging Subsidiaries (the “Charging Group”, or the “Borrowing Group”).

 

 

 

3

DIRECTORATE AND ADVISERS DIRECTORS ALLAN JAMES HUBBARD B.Com., F.C.A. (Chairman) Timaru Chartered Accountant

EDWARD ORAL SULLIVAN KSt.J., LL.B. Timaru Barrister and Solicitor

The Directors may be contacted through the Registered Office of the Company.

SENIOR MANAGEMENT LACHIE McLEOD B.Ag.Val., Dip. Comm Timaru Chief Executive Officer

KEVIN GLOAG Timaru General Manager - Funding

GRAEME BROWN BBS., CA. Timaru Chief Financial Officer

PETER BOSWORTH MBA., B.Com (AGR) Christchurch Group Credit Manager

WARRICK BAXTER Director – FACE Finance Christchurch Auditors Woodnorth Myers Chartered Accountants 100-104 Sophia Street, Timaru

Registered Office and location of Securities Register of the Company 39 George Street, P.O. Box 125, Timaru Telephone (03) 688 8117 or 0800 808 117

Solicitors Bradley West, Timaru Raymond Sullivan McGlashan, Timaru Bell Gully, Wellington

Securities Registrar The Registrar South Canterbury Finance Ltd 39 George Street, Timaru

Trustee for Stockholders and Depositors Trustees Executors Ltd Level 5, 10 Customhouse Quay P.O. Box 3222, Wellington

FOR FURTHER DETAILS ON ANY INFORMATION CONTAINED IN THIS PROSPECTUS, PLEASE CONTACT: Mr. Kevin Gloag General Manager – Funding South Canterbury Finance Ltd Telephone: 0800 808 117 Facsimile: 03 684 9550

 

 

 

4

CHAIRMAN’S STATEMENT A number of developments have occurred in respect of the Company over the 12 months to 30 June 2009 and in the period since then. In October 2008, South Canterbury Finance amalgamated with its wholly-owned subsidiary finance companies. As a result, South Canterbury Finance’s name is now recognised throughout New Zealand and the change in operating structure under the amalgamation (from a number of individual companies to a single company with regional branch offices) has already resulted in administrative benefits and cost savings for the Group. In November 2008, South Canterbury Finance entered into a Deed of Guarantee with the Crown under the New Zealand deposit guarantee scheme (the “Deposit Guarantee Scheme”)*. In broad terms, this means that (subject to the terms of the guarantee) debentures and deposits of South Canterbury Finance will have the benefit of the guarantee from the Crown up until the expiry of the Deposit Guarantee Scheme at 12.01am on 12 October 2010. The Crown has recently announced an extension to the term of the Deposit Guarantee Scheme to 31 December 2011 but on materially different terms to those of the current Deposit Guarantee Scheme. We currently intend applying to take advantage of this extension. However, at this stage, the Company does not have a Crown guarantee beyond the expiry of the Deposit Guarantee Scheme at 12.01 am on 12 October 2010 and there is no assurance that it will have a Crown guarantee after that time. In an endeavour to reduce the impact of the economic downturn on the Company, Southbury Group Limited (South Canterbury Finance’s sole ordinary shareholder) introduced a further $20 million in cash as paid up capital in March 2009 and a further $40 million of new capital in June 2009 under the acquisition by the Company of 33.6% of Dairy Holdings Limited from Southbury Group Limited for a purchase price of $75.73 million. The $40 million of new shares issued to Southbury Group Limited pursuant to this transaction were all credited as fully paid in part consideration for the acquisition of the Dairy Holdings Limited interest. The Company paid the balance of the purchase price, being $35.73 million, to Southbury Group Limited in cash. This transaction was approved by an independent expert approved by the Crown who confirmed that the transaction was on arm’s length terms and that the value paid for the interest in Dairy Holdings Limited represented fair value for South Canterbury Finance. In August 2009, Standard & Poor’s lowered South Canterbury Finance’s investment grade rating of BBB/Stable to BB+/Negative. On 21 September 2009 Standard and Poor’s Ratings Services placed its ‘BB+’ long term rating on South Canterbury Finance on CreditWatch Negative. The implications of the downgraded rating are explained in more detail in the Chief Executive’s report and on pages 26 to 27 of this Prospectus. South Canterbury Finance recognises that the independent rating is an important factor for investors and the Company remains committed to improving the rating over time. Notwithstanding the best efforts of the Company and its management team, the South Canterbury Finance Charging Group announced an audited group after tax loss of $57.8 million for the 12 months to 30 June 2009. In other recent events, the Company announced the retirements of Mr R.A. White and Mr S.J. Nattrass as South Canterbury Finance directors on 27 August 2009. The Company is currently in advanced discussions regarding the appointment of additional independent directors to the Board and intends to move to a board comprised of a majority of independent directors. It is also my intention to step down as Chairman of the Board within the next 12 months, in favour of appointing a new independent chairman. These changes to the Board of the Company will introduce a wide range of new commercial skills and expertise to the Company, and strengthen the independence of the Board and the Company’s governance. While the Board and management of South Canterbury Finance recognise that the current economic environment creates a number of challenges, it also presents the Company with some good and exciting opportunities as well.

 

 

 

5

The Company is in the process of pursuing a number of initiatives to strengthen its capital base and improve the quality of its overall asset base. In this respect, I look forward to shortly announcing a restructuring and recapitalisation plan for the Company once we are in a position to do so. On behalf of the Board, I extend our appreciation and thanks for the support received from individual and institutional investors and to our loyal staff and management team for their efforts. We look forward to your continued support during the coming year. A.J. Hubbard Chairman of Directors *Further information about this scheme is set out on pages 30 to 32 of this Prospectus and is also available, free of charge and at all reasonable times, on the Internet site maintained by or on behalf of the Treasury (www.treasury.govt.nz).

 

 

 

6

CHIEF EXECUTIVE’S REPORT Like many participants in the finance industry, the Company’s performance has been adversely affected by the economic downturn and, in particular, the impact of the downturn on its borrowers and their business activities. The impact of the economic downturn has resulted in the Charging Group taking $121.3 million of losses and non-cash provisions for non-performing investments and doubtful property loans in the financial year to 30 June 2009. Of these losses and provisions, $72.3 million was unrealised. As a result of the provision, the Company has announced an audited after tax loss of $57.8 million for the Charging Group for the financial year to 30 June 2009. To mitigate the impact of the Charging Group’s provisions for non-performing loans, the Company’s shareholder, Southbury Group Limited, injected $60 million of new equity during the year ended 30 June 2009, as noted in the Chairman’s report. In addition, in October 2008, Mr A.J. and Mrs M.J. Hubbard entered into a security sharing arrangement effectively purchasing a number of loan receivables either in full or partially for approximately $90 million from South Canterbury Finance. The majority of these impaired loans were property loans. As a further step to reduce the impact of non-performing loans, Mr A.J. and Mrs M.J. Hubbard have entered into a Deed of Underwrite and Guarantee with the Company under which they have agreed to underwrite losses which the Company may incur in respect of certain specified loans up to a maximum aggregate amount of $25 million by procuring the payment of that sum, or the transfer of assets of that value, to the Company. The obligations of Mr A.J. and Mrs M.J. Hubbard under the Deed of Underwrite and Guarantee are also limited to the value of the assets of North Wind Holdings (2009) Limited. The effect of the deed was to reduce provisioning within the Charging Group by $25 million. In July 2009, Standard & Poor’s placed South Canterbury Finance’s BBB- long term rating on CreditWatch Negative. On 13 August 2009 Standard & Poor’s announced that the Company’s credit rating had been downgraded to BB+/Negative. Shortly after the downgrade, the Company ceased allotting securities under its then registered prospectus. On 21 September 2009, Standard and Poor’s Ratings Services placed its ‘BB+’ long term rating on South Canterbury Finance on CreditWatch Negative. A CreditWatch Negative listing by Standard & Poor’s implies a one-in-two likelihood of a downgrade of the credit rating within the next three months. In the Company’s view, the CreditWatch Negative assignment relates mainly to the fact that the Company did not have a current registered prospectus and, as a result, could not take debenture investments and deposits. While the Company is once again able to take debenture investments and deposits following registration of this Prospectus, a number of other issues need to be addressed for the Company to be removed from CreditWatch Negative. Further information on the Standard & Poor’s rating is set out on pages 26 to 27 of this Prospectus. As a result of the above rating downgrade in August, investors in notes issued by the Company (under the debenture trust deed) pursuant to a United States private placement in 2008, had the right, exercisable by notice to the Company 90 days after the downgrade, to require the Company to repay their notes, in full, together with interest and other amounts calculated in accordance with the terms of the notes. In addition, the Company gave notice to those noteholders that it is now in breach of certain financial covenants set out in the private placement documentation. As a result, noteholders could, by a majority vote, have required the Company to repay their notes, in full, together with interest and other amounts calculated in accordance with the terms of the notes. The Company has entered into a binding commitment letter with the noteholders under the United States private placement under which the Company will make accelerated repayment of the principal sum of $US100 million to noteholders (together with interest on that sum) by way of instalments, with the last instalment being due on 31 March 2010. The first instalment of US$45 million will be payable in the week ending 25 October 2009.. In addition, the agreement in principle provides for the Company to pay US$5 million on 31 October 2009, US$12.5 million on November 30 2009 and 31 December 2009, US$7.5 million on 31 January 2010 and 28 February 2010 with the remaining US$10 million to be paid on maturity, being 31 March 2010.

 

 

 

7

In addition, Southbury Group Limited has agreed to pay to the noteholders a refinancing fee of $US15 million by way of three instalments, with the last such instalment also being due on 31 March 2010. South Canterbury Finance has no obligations to the noteholders, or any other person, in respect of the payment of the refinancing fee by Southbury Group Limited. A binding commitment letter and term sheet have been executed on behalf of the Company, Southbury Group Limited and noteholders, along with an agreement under which the noteholders, subject to the Company’s compliance with the new repayment schedule and other contractual terms, waive their rights relating to the credit rating downgrade referred to above and in respect of any existing breaches of the private placement documentation. The position agreed in these documents is intended to be reflected in formal amendments to the original private placement documentation, to be entered into as quickly as possible with the intention that it be entered into by 31 October 2009. A process has been put in place for finalising this formal documentation but if it is not entered into following this process, the noteholders will be able to demand repayment in full of all amounts payable to them in respect of their notes under the terms of the current private placement documentation. The payments to the noteholders will be in full and final satisfaction of all rights which the noteholders have in respect of the notes issued to them pursuant to the private placement. If the Company or Southbury Group Limited fail to pay any of the instalments, in full, on the due dates or fail to comply with any of their other obligations in respect of the agreement, then the noteholders will be entitled to demand payment in full of all amounts payable to them in respect of their notes under the terms of the current private placement documentation. The directors are satisfied that the Company and Southbury Group Limited will have the necessary funds to enable them to meet their respective payment obligations to noteholders under this agreement. Any default of the terms of the Trust Deed by the Company will also entitle the noteholders to demand payment under the terms of their notes. The agreements with noteholders include certain restrictions including the Company’s ability to pay dividends to the holder of its ordinary shares, restrictions on related party lending, restrictions on significant restructuring or asset sales and restrictions on the Company’s usage of amounts borrowed by way of Prior Charges. It is not intended that any of these restrictions will prevent South Canterbury Finance from realising assets in accordance with the statements set out in this Prospectus. The documentation does not and will not impose any financial covenants on the Company other than those set out in the Trust Deed. The noteholders have, in addition, agreed that their rights to require prepayment on a rating downgrade will no longer apply. The uncertain status of the United States private placement as at the date the auditor’s report was finalised, combined with the fact that the Company was unable at that time to raise funds through the issue of debenture stock and deposits, resulted in the Company’s auditors stating in their audit report that there was “fundamental uncertainty” regarding the validity of the going concern assumption on which the Company’s financial statements have been prepared and that, if the matters highlighted in their report were unable to be satisfactorily resolved, this could have a significant impact on liquidity and the recoverable amount of certain assets. The Company is now able to recommence raising funds from the public through the offer of Stock and Deposits under this Prospectus and, as indicated above, has reached agreement with the noteholders under the United States private placement regarding the repayment of their notes. The Directors believe that these steps should, to some extent, alleviate, but not necessarily resolve, the “fundamental uncertainty” concern raised by the Company’s auditors. Notwithstanding the Company’s view, the financial statements for the period to 30 June 2009 are, and remain, subject to the “fundamental uncertainty” raised by the auditors. The auditors have not been asked by the Company to consider whether the above steps would cause them to amend or re-consider in any way the opinions expressed in their audit report and, in expressing their view, the Directors are not intending to indicate or state that these steps have had that effect. The Company has recently announced that its $100 million standby banking facilities have been cancelled by mutual agreement. The facilities had been undrawn and, as previously announced, the Company had been unable to draw under them because it was in breach of certain covenants contained in those facilities. Accordingly, their cancellation had no cash impact on the Company. In addition, cancellation has resulted in a saving of the applicable fees on the facilities. The Company may revisit

 

 

 

8

banking facilities and their potential role in its future funding requirements once the restructuring and recapitalisation plan discussed below is completed. In the meantime, the Company is in the final stages of arranging a new $75 million credit facility with a third party provider. It is intended that this funding, or a substantial part of it, will be used to prepay US noteholders as described above. As at 30 September 2009, South Canterbury Finance had cash on deposit of $41.3 million and realisable investments of $47.6 million. In addition, as at 14 October 2009, approximately $45.1 million was being held on trust on behalf of investors because the Company was unable to allot securities to them before registration of this Prospectus occurred. Each of those affected investors has been given the opportunity to ask the Company to repay their funds and has not done so to date. Accordingly, the Company is confident that the majority of the funds held in trust will be invested in Stock and Deposits under this Prospectus. The Company has the ability to borrow up to 7.5% of its Total Tangible Assets under prior ranking charges under the terms of its Trust Deed, which charges rank ahead of all other obligations of the Company (including the Stock and Deposits offered under this Prospectus). As at 30 September 2009, there were existing prior ranking charges of $34.1 million. Accordingly, the Company is able to borrow up to a further $127 million by way of prior ranking charges. This provides a potential source of liquidity to the Company. The Company currently intends borrowing up to $75 million by way of a prior ranking charge under the new facility referred to above. The Company confirms that the borrowing restrictions under the agreements with the noteholders under the United States private placement will not prevent the Company from borrowing the sum of $75 million by way of prior ranking charge under the new facility. In addition, the Company may over time borrow by way of prior charges the full amount permitted under the Trust Deed. Management accounts for the Company for the period since 30 June 2009 indicate that the Charging Group has traded profitably over that period. This provides a strong endorsement as to the underlying profitability of the Company. In the period since the Company ceased allotting securities under its previous registered prospectus, it has met its obligations to its creditors out of the proceeds of loan repayments and from the sale of investments. The funds raised under this Prospectus will be used by the Company to fund its business activities including, where necessary, meeting its repayment obligations. No further provisions have been made in respect of the Company’s loan portfolio for the period since 30 June 2009, but there is a risk that further provisioning may become necessary if there is either deterioration in existing impaired loans or there is deterioration in other loans that have not yet been identified as being impaired. The Company has advanced plans to recapitalise its balance sheet and fully restructure its business operations, to meet both the changed market conditions and the expected new capital requirements proposed by the Reserve Bank under the new regulatory regime for non-bank deposit takers. Under the recapitalisation plan, the Company’s parent proposes raising additional capital to enable it to inject further equity into the Company. The Company understands that its parent initially proposes seeking between $40 million and $75 million of additional equity or convertible capital by way of a private placement to selected investors. Based on advice received as at the date of this Prospectus, the Company is confident that it will receive additional equity of that amount as a result of the proposed private placement. The Company understands that its parent also intends proceeding with a wider capital raising once the proposed private placement has been completed and that further additional equity is proposed to be injected into the Company following that wider capital raising. The successful implementation of the recapitalisation plan is integral to the Company’s ability to operate profitably in the future. The parent does not guarantee any of the securities offered in this Prospectus. As part of its restructuring and recapitalisation process, the Company intends: •

divesting a range of non-core assets over the next 6 to 12 months (including, if appropriate, reducing its shareholdings in Dairy Holdings Limited and South Island Farm Holdings Limited. The Dairy Holdings Limited shareholding is, in the Company’s view, a high quality asset and is expected to attract wide-spread interest should the Company decide to reduce, or sell all of, its shareholding in that company. South Island Farm Holdings Limited owns shareholdings in some twenty dairy and other farms across the South Island. In the medium term, the Company is likely to seek to divest its holding in South Island Farm Holdings Limited to ensure the Company is able to meet proposed Reserve Bank capital requirements for non-bank deposit takers);

 

 

 

9

•

refocusing its lending operations on the Company’s traditional business, plant and equipment, consumer and rural lending areas;

•

seeking to reduce related party lending by up to $50 million before 30 June 2010;

•

appointing additional independent directors (including an independent chairman within the next 12 months) and new appointments to the senior management team of the Company, and improving its governance. (The Company expects to announce the appointment of two new independent directors in the immediate future);

•

not making any new capitalised lending in the property development sector other than in very exceptional circumstances and then only where the loan is extremely well secured; and

•

reviewing and implementing further changes to its lending and credit approval processes in light of the adverse market conditions.

Together with the proposed recapitalisation of the Company, the Board considers these broad-ranging restructuring initiatives should enable the Company, over the next 18 to 24 months, to comply with the Crown’s proposed new regulatory regime for non-bank deposit takers should it be introduced in its current form. The Company will make a further announcement regarding the restructuring and capital raising process as soon as it is in a position to do so. The Company acknowledges that its lending activities have grown significantly with the Charging Group’s net advances increasing from $1,380.3 million as at 30 June 2008 to $1,629.9 million as at 30 June 2009. The global financial crisis and, in particular, the deterioration in the property development market has adversely impacted on the quality of the Charging Group’s property sector loan portfolio, as reflected in the $48.4 million of specific impairment provisions made by the Charging Group in respect of its property sector loan portfolio. As indicated above, the Company intends re-focusing its lending operations on its traditional business, plant and equipment, consumer and rural lending areas and winding down and, where possible, divesting its exposure to property development lending. The Company’s internal processes and systems need to be updated to meet the demands of the Company’s increased loan portfolio and, as indicated above, the Company is reviewing and implementing changes to its lending and credit approval, and loan management, processes to reflect the current adverse market conditions. The measures will, once implemented, result in the Company being well placed to meet the challenges of the future. In considering the impact of the events of the last year on the Company’s position, it is important to bear in mind that the Company and its investors still have the benefit of the Crown guarantee under the Deposit Guarantee Scheme in respect of Stock or Deposits which mature, or otherwise become payable, on or before 11 October 2010. Further details regarding the terms of the Deposit Guarantee Scheme are set out on pages 30 to 32 of this Prospectus. Notwithstanding recent challenges, the Company believes it is well positioned to continue to operate successfully in the non-bank finance sector. The Company has a number of restructuring initiatives underway designed to refocus its business on its traditional areas of core lending strength and profitability and improve the quality of its asset base. L.J. McLeod Chief Executive Officer

 

 

 

10

BUSINESS OVERVIEW The South Canterbury Finance Group offers a diverse range of products and services to borrowers in the business, plant and equipment, property, rural and consumer sectors. The key products and services offered include hire purchase, floor plans, leasing of plant, vehicles and equipment, personal loans, business term loans and revolving credit facilities, mortgages over property and other financial instruments, including consumer loan insurance. South Canterbury Finance has a presence in most of the main centres throughout New Zealand with 14 regional offices. In addition, Flexi Lease Ltd (a subsidiary of South Canterbury Finance), which is two years through a three year wind-down process operates in Christchurch and Auckland leasing near-new cars to the business market. Face Finance Ltd (a 75% subsidiary of the Company) operates from Christchurch and Auckland providing finance to the plant and equipment sector throughout New Zealand, and Southbury Insurance Limited is based in Christchurch and provides consumer protection insurance. As one of New Zealand’s leading non-bank deposit takers, South Canterbury Finance lends to a wide cross-section of businesses and consumers. As a non-bank deposit taker, it traditionally offers finance to a wide range of borrowers compared to mainstream banks and accepts a more diverse range of securities and security positions, and yields on loans, than mainstream banks typically accept. Business Lending The business lending sector has been a traditional strength of the South Canterbury Finance Group. The Company lends to a vast range of businesses throughout New Zealand including businesses involved in manufacturing, professional services, fishing, tourism, hospitality and importing and exporting businesses. As at 30 June 2009, the Charging Group had net receivables in this sector of approximately $618.8 million consisting of 2030 loans with an average loan size of $369,748. Ten business lending loans are for an amount in excess of $10 million each. The vast majority of the loans in this sector, by value, are interest only loans with interest being paid, on a regular basis, during the term of the loan and the principal being repaid on maturity. Approximately 21% of the loans in this sector are amortising over the term of the loan. As at 30 June 2009, total impairment provisions relating to the Charging Group’s business lending portfolio were approximately $21 million, being approximately 3.7% of the portfolio and 1.3% of the Charging Group’s total net receivables. Over the last 12 to 18 months, the Company has made a number of larger loans to corporate borrowers reflecting, to a large extent, the relative absence of liquidity in the mainstream banking sector. A large number of these loans have since been repaid. As part of the Company’s proposed restructuring and divestment of non-core assets, and the intended reduction in its lending book, the Company envisages that, in the future, 90% of its business loans will be for amounts of less than $5 million with the bulk being below $1 million. The focus, in the sector, will be on loans in the provinces to well-secured, small businesses with loan exposures of less than $1 million.

 

 

 

11

Business loans are typically for business expansion and acquisitions, funding of working capital lines, guarantees for trade facilities or to finance the purchase of other assets. Loan terms are generally for two to three years and most customers are provided with a term loan or revolving credit facility. The Company is willing to roll-over existing loans on their maturity date where the borrower is otherwise meeting its obligations under its loan and the Company’s security position is satisfactory. As indicated on page 15, applications for roll-overs are dealt with on the same basis as the application for the original advance. The South Canterbury Finance Group is well placed in this sector with specialist business lenders in each region. South Canterbury Finance has a close working relationship with the trading banks and will often work together with a trading bank to provide funding to a borrower where South Canterbury Finance takes a subsequent charging position to the bank. It has a track record of providing flexible solutions for customers based on a depth of experience built up over many years. Most lending in the business sector is secured over property and other tangible assets, including plant and equipment, by way of a general security agreement or a first or second registered mortgage. As at 30 June 2009, approximately $310 million (or approximately 50%) of South Canterbury Finance’s business sector loans were secured by first ranking charges while the remaining loans were secured by second ranking or subsequent charges. With the tightening of the credit cycle, South Canterbury Finance is well positioned to manage its existing portfolio and capitalise on any future lending opportunities which may present themselves. Plant and Equipment Lending South Canterbury Finance, through its network of regional offices and 75% owned Face Finance Ltd, lends money to businesses and individuals secured over plant and equipment. Face Finance Ltd, with offices in Christchurch and Auckland, was established in response to strong demand for plant and equipment lending and the restructuring of other providers in the market. This specialist area of business financing has provided the Company with considerable growth over recent years. Plant and equipment lending involves lending to businesses operating in the transport, contracting, agriculture and horticulture, manufacturing and aviation industries. Lending in this portfolio is well diversified geographically and by industry, with its key credit exposures in aviation, contracting and transport.

 

 

 

12

As at 30 June 2009, the Charging Group had net plant and equipment receivables of approximately $267.9 million consisting of 587 loans with an average settlement value of approximately $461,627. Approximately $237 million (or approximately 89%) of the Charging Group’s plant and equipment sector loans as at 30 June 2009 were secured by first ranking charges while the remaining loans were secured by second ranking or subsequent charges. As at 30 June 2009, total impairment provisions relating to the plant and equipment portfolio were $2.8 million, being approximately 1.1% of the portfolio and 0.2% of the Company’s total net receivables. Over the next 12 months, South Canterbury Finance will look to consolidate the growth it has experienced in this sector and build on the presence and brand of Face Finance Ltd. Property Lending The Company is winding down and, where possible, divesting its exposure to property development lending by proactively working with its existing clients in this sector to reduce their level of borrowings from South Canterbury Finance. Due to the current lack of liquidity in the property market, it is anticipated that this will be a gradual process. As at 30 June 2009, the Charging Group’s net receivables in the property sector were approximately $485.7 million or approximately 29.8% of its total receivables. As at 30 June 2009, property lending consisted of approximately 265 loans with an average loan settlement value of approximately $1.89 million. Twelve property loans are for amounts in excess of $10 million each, with the largest property loan (hotel business) being $44.9 million. Almost all of the loans in the property sector are interest only loans and, for the majority of those loans, interest is capitalised during the term of the loan and only paid on maturity. In the Company’s experience, lending of this nature is not uncommon particularly in the case of loans for property developments. As at 30 June 2009, total impairment provisions relating to the Company’s property lending portfolio were $48.4 million, being approximately 9.96% of the portfolio and 3.0% of the Company’s total net receivables. Property lending has traditionally been development lending or lending secured over land held for future development, typically for 6 to 24 months secured by way of a first or second registered mortgage. As at 30 June 2009, approximately $275 million (or approximately 57% of the Charging Group’s property sector loans were secured by a first ranking mortgage and approximately $210 million (or approximately 43%) was secured by a second or subsequent ranking mortgage. The Company significantly reduced its lending of this nature in early 2008 but has been required to continue funding development costs for existing borrowers to enable the completion of projects. At the time of origination of those loans, there were clear exit strategies, mainly involving the sale of the project. However, in many cases the exit strategy has not eventuated for a variety of reasons such as defaults by purchasers and the failure of the developers to complete subdivisions in time. Rural Lending South Canterbury Finance has had a long standing presence in the New Zealand rural lending market as a result of the background of its Chairman, Directors, and executive team, and their respective relationships with the rural sector. The General Manager of Rural Lending further enhances this presence and assists the Company to build on its existing relationships within the rural sector. As at 30 June 2009, the Charging Group’s rural loan portfolio stood at approximately $178.15 million and covers a number of loan types from term loans for land use changes through to seasonal funding arrangements and all forms of rural activities from sheep and beef to dairy farming. As at 30 June 2009, South Canterbury Finance had approximately 246 rural loans with an average loan settlement value of approximately $664,800, with two rural loans in excess of $10 million each. As at 30 June 2009, total impairment provisions relating to the Company’s rural portfolio were approximately $3.9 million, being approximately 2.2% of the rural portfolio and 0.2% of the Charging Group’s total net receivables. As at 30 June 2009, approximately $144 million or approximately 81% of South Canterbury Finance’s Rural sector loans were secured by first ranking charges and approximately $34 million (or approximately 19%) by second ranking charges. 

 

 

 

13

As a result of the continual growth in the rural sector in New Zealand and the corresponding growth in demand for funding, South Canterbury Finance sees this sector as continuing to offer key lending opportunities. Consumer Lending The South Canterbury Finance Group lends to a range of customers in the consumer sector for a wide variety of purposes including the financing of boats, cars, home improvements and personal activities. Selected car and boat dealers also originate loan facilities on behalf of members of the South Canterbury Finance Group in a number of regions. As at 30 June 2009, the Charging Group had net consumer lending receivables of approximately $79.41 million consisting of approximately 9,877 loans corresponding to an average settlement value of approximately $7,587. These loans were well spread geographically. As at 30 June 2009, total impairment provisions relating to the Charging Group’s consumer lending portfolio were approximately $1.6 million, being approximately 2.0% of the consumer portfolio and 0.1% of the Company’s total net receivables. Typically, each loan is secured by a mortgage over property or a registered finance charge over a vehicle. As at 30 June 2009, approximately $71 million (or approximately 89%) of South Canterbury Finance’s consumer sector loans were secured by a registered charge over specific assets or property. Loan applications within agreed criteria are approved by the General Manager of Consumer Lending or otherwise by the National Credit Manager. One of the Company’s key points of difference in the consumer lending market is that a significant number of applicants are personally interviewed. Competition has traditionally been very intense in the consumer lending sector which has been dominated by a number of larger providers, the trading banks and with many smaller operators competing at the lower end of the market. Over the last 18 to 24 months this sector has undergone significant rationalisation with a number of key providers and numerous smaller providers withdrawing from the market. While South Canterbury Finance has been gradually reducing its exposure to the consumer lending market over recent years, the rationalisation that has occurred in this segment of the market may provide some quality lending opportunities. The Company will, however, approach any such opportunities with caution. CREDIT CONTROL South Canterbury Finance has developed a range of policies and procedures that are used in assessing and approving all loan applications. Industry and product concentrations are managed within established credit policies and underwriting standards. South Canterbury Finance also has formal provisioning polices that are monitored and reviewed by both management and the Board. Over its long history, South Canterbury Finance has established strong relationships with its customers, many of whom have been clients of the Company for a number of years. This history, and the Company’s local presence in the communities in which it operates, have enabled the Company to understand borrowers’ needs, their businesses and, ultimately, their credit capacity to the best extent possible. Credit Approval process The Company’s credit approval processes were reviewed and amended in July 2009 to provide for a more rigorous loan application and credit approval process than was the case previously. The outcome of this process must be satisfactory to South Canterbury Finance before an advance is made to a borrower. This process involves in depth analysis of: •

the previous history of the borrower and its past financial performance;

•

the strategic and financial viability of the proposed loan and business; and

 

 

 

14

•

the adequacy of security, industry trends and the industry outlook.

Any loan application with an aggregate value (including roll-overs, top-ups and extensions) of greater than $100,000 must now be approved by the National Credit Manager and the Group Credit Manager before it is sent to the Company’s newly established Independent Credit Committee, where a unanimous decision is needed for approval. Previously, all loans up to $1 million were approved by the Chief Executive, while loans over $1 million had to be approved by Board members with the size of the loan determining the number of Board members who would be involved in the approval process. The new Independent Credit Committee comprises the Chief Executive, the General Manager of Plant Lending (Face Finance) and the Chief Executive of Scales Corporation Ltd. The Company has a well established credit process to support the new Independent Credit Committee, to monitor existing policies, and to develop and implement new credit policies to manage ongoing credit risk. In the case of loans with an aggregate total value of greater than $3 million, a member of the Board sits on the new Independent Credit Committee in addition to its regular members. Applications for roll-overs of existing loans are dealt with on the same basis as the application for the initial advance.

 

 

 

15

MANAGEMENT DISCUSSION AND ANALYSIS OF THE YEAR TO 30 JUNE 2009 For the year to 30 June 2009, South Canterbury Finance reported an audited Charging Group net loss after tax of $57.8 million which included losses and provisions on loans and investments totalling $121.3 million before tax. Excluding impairments on loan advances, gains and losses on investments and intangible assets, and excluding foreign exchange gains and losses, South Canterbury Finance recorded an underlying trading profit before tax of $32.3 million. As at 30 June 2009, South Canterbury Finance had net advances of $1,630 million, diversified across five lending portfolios consisting of Business (38%), Plant and Equipment (16%), Property (30%), Rural (11%) and Consumer (5%).

South Canterbury Finance Limited and Charging Subsidiaries Net Advances as at 30 June 2009 ($m) Consumer $79.4 5%

 

The Charging Group’s advances included impaired loans with a gross value (before deducting provisions) of $301.2 million (2008: $61.5 million). The Charging Group has made total impairment provisions in respect of its advances of $77.9 million (2008: $21.3 million) including $55.1 million of specific provisions in respect of its loans, a collective provision of $7.2 million and a net present value allowance in relation to impaired loans of an additional $15.6 million. A specific loan impairment is recognised when the loan value is greater than the security supporting the loan receivable. South Canterbury Finance takes into consideration the value of assets and guarantees pledged as security for the loan in forming this assessment and also relies on a range of information including independent valuations and the specialist knowledge of its lending team. The collective provision is recognised for a portfolio of loan receivables, based on that loan portfolio’s historical loss history over a five year period. South Canterbury Finance is of the view, as at the date of this Prospectus, that the level of provisioning adopted by it is appropriate based on the information available to it. The impairment provision made by the Company was reviewed by its auditors in the normal course of their audit. The Company’s performance and the performance of its loan portfolio since 30 June 2009 has not currently resulted in any need to make any further impairments in respect of the Company’s loan portfolio.

 

 

 

16

There is a risk that, notwithstanding the impairment provisions made by the Company, the Company will suffer greater losses in respect of its advances than the amount provided due to the inability of borrowers to meet their repayment obligations or the inability of the Company to recover the full amount of a loan through the exercise of its enforcement rights. If the Company experienced losses in its loan portfolio significantly in excess of the amount of its provisions, that may impact adversely on the ability of the Company to meet its obligations to its creditors (including holders of Stock and Deposits) as and when they fall due. As at 30 June 2009, the Company had past due loans of $132.38 million in total (2008: $22.5 million) including $42.9 million of loans that were past due by more than 30 days (2008: $22.5 million). Of the total amount of past due loans, the property portfolio accounted for $68.2 million (being 52%) of total past due loans while the business portfolio accounted for $34.3 million (being 26%) of total past due loans. The remaining loan portfolios (i.e., plant and equipment, rural and consumer) accounted for past due loans of $29.8 million (being 22% of total past due loans). Again, a failure of these borrowers to repay in full may impact adversely on the ability of the Company to meet its obligations to its creditors (including holders of Stock and Deposits) as and when they fall due if the Company is unable to recover, in full, the amounts owed to it through the exercise of its enforcement rights in respect of the relevant loans. As at 30 June 2009, the South Canterbury Finance Charging Group had shares and investments of $234.9 million including approximately $113.5 million of investments in NZX listed companies/securities and an investment of $67.2 million in South Island Farm Holdings Limited, the latter being acquired by South Canterbury Finance as partial consideration for the purchase from the Company of non-performing property loans in October 2008 by Mr A.J. and Mrs M.J. Hubbard. All of those loans were purchased for their face value. South Canterbury Finance also had approximately $104.6 million invested in plant, property and equipment which consisted of approximately $15.2 million of land and buildings and $87.9 million of helicopters and plant. In addition, South Canterbury Finance had approximately $83.5 million invested in associated companies which consisted primarily of an investment in 33.6% of the shares in Dairy Holdings Limited, the largest dairy supplier in New Zealand in the year to 31 May 2009. The Dairy Holdings Limited investment was acquired by South Canterbury Finance for a purchase price of $75.73 million, which price was paid as to $35.73 million in cash and as to $40 million through the issue of 40 million of new ordinary shares in South Canterbury Finance to Southbury Group Limited, all of which were credited as fully paid. The Company believes that due to (among other factors) the very high quality of Dairy Holdings Limited’s dairy farms, its 33.6% interest in Dairy Holdings Limited is relatively liquid and retains the value attributed to it at the time of purchase. As at 30 June 2009, South Canterbury Finance had $220.3 million of related party loans which includes loans to entities related by directorships, entities over which directors are able to exercise significant influence, and entities related to Southbury Group Limited (the parent company of South Canterbury Finance). The principal related party loans included a $39.1 million loan to Kelt Finance Limited (a 75% owned subsidiary of the Company that is not currently part of the Charging Group), a $75.1 million loan to South Canterbury Finance’s parent, Southbury Group Limited (which loan has subsequently been reduced to $65.2 million via a principal repayment of $9.9 million post balance date), and loans of $20.2 million, $15.3 million and $12.5 million to Helicopters (N.Z.) Limited, Plum Duff Limited and Commtest Instruments Limited, respectively. The Helicopters (N.Z.) Limited transaction was determined by the Board and management to be an arm’s length transaction undertaken in the normal course of business. Commtest Instruments Limited was acquired by the Company as a set off against non-performing loans. This investment was not independently valued at the time it was acquired but was subsequently assessed by Ernst & Young. An impairment of $4 million has been taken in respect of the shareholding. In 2007, the Company acquired a beneficial interest in shares of New Zealand Wool Services International Limited, a stock exchange listed company, from Plum Duff Limited (formerly Forresters New Zealand Limited). South Canterbury Finance subsequently agreed to re-transfer the beneficial interest in those shares to Plum Duff Limited at the request of the Takeovers Panel. The purchase price paid by Plum Duff Limited for the interest was in excess of market value). To facilitate this transaction, South Canterbury Finance made the abovementioned advance to Plum Duff Limited. All of the above transactions are secured, and, except for loans to key management personnel and former directors (amounting to approximately $21.5 million which are secured against shares in Southbury Group Limited), are at rates not less than the Company’s cost of funds. The Company, through its Charging

 

 

 

17

Subsidiary Helicopters Nominees Limited, owns helicopters and has profitably provided operating leases of those helicopters to Helicopters (N.Z.) Limited for a number of years. In addition, the Company has an investment of $20 million (at a coupon of 8%) in preference shares issued by Helicopters (N.Z.) Limited (this investment is in addition to the loan referred to above). No related party loans are impaired nor were any such loans written off or forgiven during the year to 30 June 2009, nor were any specific provisions made in respect of any such loans. While the Board of South Canterbury Finance has long considered that some of its best loans are to related parties due to the Company’s knowledge of the borrowing entities’ financial performance and position, the Company is seeking to reduce related party lending by at least $50 million over the next 12 months. The Company is in the process of finalising a restructuring and recapitalisation plan. A key part of this plan will revolve around positioning the Company to comply with the provisions of the proposed new nonbank deposit taker regime which, if enacted in its current form, will require a reduction in both related party lending and non-core assets. As stated in the Borrowing Group’s audited financial statements on pages 44 to 71 of this Prospectus, the Company has borrowings of $919.2 million which are due to be repaid by 30 June 2010 and a further $255.4 million of borrowings which are due to be repaid prior to the expiry of the current Deposit Guarantee Scheme. In addition, the Company has reached agreement under which the Company will make accelerated repayment of the principal sum of $US100 million to noteholders (together with interest on that sum) by way of instalments, with the last instalment being due on 31 March 2010. Further detail regarding these arrangements is set out in the Chief Executive’s Report on pages 7 to 10 of this Prospectus. The directors of the Company are of the view that the Company will, through the issue of Stock and Deposits under this Prospectus and the realisation of assets, be able to repay its borrowings as and when they fall due for repayment. The Company has a long and successful history of utilising the domestic debenture funding market to generate liquidity to meet its financial commitments. Currently, the Company continues to have the benefit of issuing Stock and Deposits under the Deposit Guarantee Scheme. The Company’s four week rolling average reinvestment rate, by number, decreased during the year to 30 June 2009, falling from 67.2% as at 31 December 2008 to 65.15% over the later months of the financial year while the four week rolling average reinvestment rate, by value, fell from 71.74% to 60.10% over the same period. The Company attributes this fall in reinvestment rates principally to the interest rates it was offering compared to those offered by other entities which had the benefit of a guarantee under the Deposit Guarantee Scheme. The Company is confident that by offering competitive interest rates, it will be able to improve its reinvestment rates over time and, thereby, raise the funds required to enable it to meet its commitments through the issue of Stock and Deposits. The Company acknowledges that it currently holds a number of assets (including loans) that it may have difficulty realising for their full value in the current economic climate, particularly if it was required to realise those assets urgently. However, the directors of the Company are confident that, with the Company once again able to raise funds through the issue of Stock and Deposits under this Prospectus and with the additional equity which the Company anticipates receiving under the proposed recapitalisation plan, the Company will be able to realise assets in an orderly manner and, thereby, recover their full value over time. In addition, there may be borrowers from the Company who, while currently meeting their interest obligations on their loans, may not be able to repay their loans in full on the scheduled maturity date. Again, the Company is confident that, over time, it will be able to receive the amount of those loans in full. If the Company is unable to realise assets (including loans) as and when required, or to raise sufficient funds from the issue of Stock and Deposits under this Prospectus, to enable it to repay its indebtedness as it becomes due during the term of the current Deposit Guarantee Scheme, then that will constitute a “Default Event” under the Crown guarantee with the result that, subject to the terms of the Deposit Guarantee Scheme, all eligible investors would be entitled to payment under the terms of the Crown guarantee irrespective of whether or not their Stock or Deposits were due to mature before or after the expiry of the Deposit Guarantee Scheme.

 

 

 

18

MAIN TERMS OF THE OFFER ISSUER This offer is being made by South Canterbury Finance Ltd. The Company’s registered office is located at 39 George Street, Timaru. SECURITIES ON OFFER This is an offer of an additional $500,000,000 of First Ranking Registered Debenture Stock (“Stock”) with an aggregate principal amount of $500,000,000 (all of which is being offered at an issue price of $1.00 for each unit of Stock) and $50,000,000 of Unsecured Deposits (‘Deposits”). This is in addition to any amount required to replace or renew existing debenture stock and unsecured deposits. The Stock is first ranking subject to permitted Prior Charges under the Trust Deed and statutorily preferred claims. PROSPECTUS This Prospectus is dated the 20th day of October 2009. A copy of this Prospectus duly signed together with copies of the documents which are required by section 41 of the Securities Act 1978, and regulation 7 of the Securities Regulations 1983 (being the Auditor’s Report (page 72) and the Auditor’s Consent and copies of any new material contracts entered into during the period of two years preceding the date of this Prospectus) was delivered to the District Registrar of Companies, Wellington for registration under section 42 of the Securities Act 1978. STOCK EXCHANGE LISTING Listing of the Stock and Deposits is not being sought on the New Zealand Stock Exchange. Stock and Deposits may be transferred to another person by completing a Security Transfer Form and forwarding it, together with the relevant Stock Certificate or Deposit Certificate, to the Company. GUARANTORS Neither the shareholders of the Company nor the Trustee for the Stockholders and Depositors guarantee repayment of the Stock or Deposits or the payment of interest on them. NEW ZEALAND DEPOSIT GUARANTEE SCHEME South Canterbury Finance has a guarantee under the Deposit Guarantee Scheme. Information about this scheme is set out on pages 30 to 32 of this Prospectus and is also available, free of charge and at all reasonable times, on the Internet site maintained by or on behalf of the Treasury (www.treasury.govt.nz). INTEREST Other than in the limited circumstances outlined below, interest will commence from the date of acceptance of application monies by the Company, and, at the investors option be payable monthly or quarterly, or be compounded quarterly. Quarterly interest will be paid or credited on the last days of March, June, September and December of each year. Compounded interest will be added to the original investment for payment at maturity. All interest payments will be made to the registered holder of Stock or Deposits. In the case of investors who applied for Stock or Deposits under the Company’s previous prospectus (whether under a new application or a reinvestment) but to whom securities were not able to be allotted

 

 

 

19

because the Company had suspended allotting securities under that prospectus, the Company will pay interest to them at the rate of their selected investment under this Prospectus from the date on which their subscriptions were placed in trust if and to the extent that they apply those subscriptions in subscribing for Stock or Deposits under this Prospectus. In effect, those investors will have their investment under this Prospectus backdated to the date on which their initial applications were received by the Company or, in the case of roll-overs, to the date on which their prior investment would otherwise have rolled-over. The Company may decline to accept an application (either in whole or in part) where acceptance would be in breach of the terms of this Prospectus. In such cases, the application money will be returned to the investor. Unless the Company decides otherwise, no interest is payable on returned application money. INVESTMENT OPTIONS 1.

First Ranking Stock — The Stock issued under this Prospectus will rank equally with all other Stock now existing or at any future time issued by the Company pursuant to the Trust Deed. The Stock does, however, rank behind permitted Prior Charges under the Trust Deed and statutorily preferred claims. As at 30 June 2009, there was Stock of $2,073.38 million, in total, and there were permitted Prior Charges of $34.123 million, in total. As indicated above, the Company currently intends borrowing up to $75 million by way of a prior ranking charge and may over time borrow by way of prior charges the full amount permitted under the Trust Deed. Stock is available for investment for terms of between three months and five years.

2.

Deposits — These are unsecured, ranking behind First and Second Ranking Stock and any other secured debts, and behind statutorily preferred claims. The Deposits taken under this Prospectus will rank equally with all other unsecured deposits now existing or at any future time taken by the Company and also will also rank equally with other unsecured creditors. As at 30 June 2009, unsecured deposits and other unsecured creditors totalled $28.173 million. Deposits can be made at call or for terms of up to five years.

INTEREST WITHHOLDING TAX The Company is required to deduct resident withholding tax from interest paid or credited to New Zealand resident investors and non-resident investors who have a fixed establishment (i.e. a branch) in New Zealand each quarter or on maturity, unless the investor holds a valid RWT Certificate of Exemption issued by the Inland Revenue Department (“IRD”). If applicable, resident withholding tax will be deducted at a rate of 19.5%, 33%, or 39% at the option of the investor (although a company cannot elect the 19.5% rate). The tax withheld can be claimed as a credit by investors against the investor’s New Zealand income tax liability on income included in their tax returns. An Annual Certificate is issued to each investor shortly after 31 March each year showing total interest earned and withholding tax deducted for that year. Investors are required to advise the Company of their IRD number. Where no IRD number has been supplied, the Company must deduct resident withholding tax at the no declaration rate of 39% of interest paid or credited. The resident withholding tax rates described above are likely to change as a consequence of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill which was introduced in July 2009. If passed in its current form, the applicable resident withholding tax rates for individuals (including corporate trustees) will be 12.5%, 21%, 33% and 38%. The rates for companies will be 30% and 38% and the "non-declaration" rate will be 38%. These changes are proposed to take effect from 1 April 2010 (other than the 30% company rate which will apply from 1 April 2011 unless the interest payer elects to withhold at that rate from 1 April 2010).

 

 

 

20

COMPOUNDING STOCK Investors who prefer to accumulate capital can increase their total earnings by applying for compounding Stock. Instead of the interest earned being paid, it is credited to the Stockholder’s account with the Company (after deduction of withholding tax), thus earning further interest. PURPOSE OF THIS ISSUE The purposes of this issue of Stock and Deposits are to provide additional funds for financing the activities of the Company and to provide for redemptions falling due. APPLICATIONS Applications must be on our standard application form, accompanied by a remittance for payment in full, and may be directed through: (a)

Market participants of NZX Limited.

(b)

South Canterbury Finance Ltd, 19 Sophia Street, Timaru (P.O. Box 125).

(c)

Members of the Institute of Financial Advisors (IFA).

(d)

Professional Advisors.

The offer of Stock and Deposits under this Prospectus opens on the date of registration of this Prospectus, and will remain open until filled, or closed by the Directors. South Canterbury Finance reserves the right to cease or suspend receipt of applications for Stock or Deposits under this Prospectus to ensure its on-going compliance with the Securities Act 1978 and the terms and conditions of its Trust Deed. VARIATION OF INTEREST RATES Interest rates are set by the Company and may be varied during the currency of this Prospectus. The interest rates currently applying to the Stock and Deposits may be ascertained from the application form applying at the time of investment. In the event of any variation in interest rates offered by the Company, applicants whose applications are lodged on or after the date of variation will be promptly advised of the variation. Where the variation involves a decrease in interest rates, unless the applicant confirms that such a decrease is acceptable, their application money will be refunded in full within fourteen days of sending notice of the variation, with interest at the Company’s then current ‘on call’ rate. REPAYMENT Repayment will be affected on surrender of the Certificates for the relevant Stock or Deposits on maturity or: (a)

in the event of death of a sole Stockholder or Depositor, the Stock or Deposit (as the case may be) may be retired upon not less than two months notice; or

(b)

by arrangement with the Company, Stock or Deposits may be retired upon not less than one months notice when funds are required to meet unforeseen circumstances.

In the event that early repayment is agreed to by the Company, there is no fee payable. However, the interest rate payable in respect of the investment may, at the Company’s discretion, be amended to reflect the reduced term of the investment.

 

 

 

21

BROKERAGE Brokerage at the undermentioned rates will be paid by the Company to approved parties on the principal amount of Stock issued or the amount of Deposits accepted in respect of applications lodged by them and bearing their stamp: 3 months

0.125%

2 years

1.00%

6 months

0.25%

30 months

1.25%

12 months

0.50%

3 years

1.50%

18 months

0.75%

4 years

1.75%

5 years

2.00%

CERTIFICATES Certificates for Stock and Deposits will be sent to investors as soon as possible after the acceptance of their application. The minimum application is $100 for Stock or Deposits.

 

 

 

22

ADDITIONAL STATUTORY INFORMATION DETAILS OF INCORPORATION OF ISSUER South Canterbury Finance Limited was incorporated as a Private Company on 10 February 1926, under the Companies Act 1908, Registered No. 121022. The Company reregistered under the Companies Act 1993 on 30 May 1995. The Company’s public file may be viewed on the Companies Office website at www.companies.govt.nz. Copies of the documents may also be obtained (possibly on payment of a fee) by telephoning the Companies Office Contact Centre on 0508 266 726. The Constitution and Trust Deed may be inspected without fee at the registered office of the Company during normal business hours. ACTIVITIES OF BORROWING GROUP South Canterbury Finance and its guaranteeing subsidiaries have, during the five years preceding the date of registration of this Prospectus, provided a balanced range of consumer finance and finance to the industrial, farming and commercial sectors. The Company offers a range of finance products by way of hire purchase, floor plan, leasing, block discounting, mortgages against property and personal loans. The Borrowing Group consists of: Interest South Canterbury Finance Limited Belfast Park Limited Braebrook Properties Limited Face Finance Limited Fairfield Finance Limited Flexi Lease Limited Galway Park Limited Helicopter Nominees Limited Hornchurch Limited Rental Cars Limited SCFG Systems Limited Sophia Investments Limited Southbury Insurance Limited Tyrone Estates Limited

100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

On 1 October 2008, South Canterbury Finance completed an amalgamation of the following 100% subsidiaries which were previously members of the Borrowing Group: Ashburton Finance Limited Auckland Finance Limited Canterbury Finance Limited Otago Finance Limited Palmerston North Finance Limited Tasman Bay Finance Limited Waikato Finance Limited Wellington Finance Limited Southland Finance Limited was not previously part of the Borrowing Group but was one of the subsidiaries which amalgamated with South Canterbury Finance on 1 October 2008. On 30 June 2005, Face Finance Ltd, a 75% owned subsidiary, became a member of the Charging Group. Face Finance Ltd operates in the finance industry, focusing on commercial loans. The activities of Coversure Guarantee Ltd were wound up on 30 June 2005. This company provided insurance broking services to Palmerston North Ltd. On 19 February 2009, it changed its name to Sophia Investments Ltd. Southbury Insurance Ltd now provides this service to all companies in the Charging Group. On 1

 

 

 

23

December 2005, Rental Cars Ltd sold the Thrifty Car Rental franchise to an independent third party at market value. Rental Cars Ltd is no longer trading. Galway Park Ltd was incorporated on 1 April 2008 as a property investment company. The principal fixed assets of the Borrowing Group comprise commercial land and buildings, leasehold improvements, office equipment, motor vehicles and helicopters (that are leased to third parties). These assets are employed by the Borrowing Group in the conduct of its business activities referred to above. All of these assets are owned by members of the Borrowing Group. MATERIAL CONTRACTS South Canterbury Finance agreed on 9 November 2007 to sell its 12.75% shareholding in Dairy Holdings Limited to Southbury Group Limited with effect from 30 November 2007. South Canterbury Finance entered into an underwriting agreement dated 19 November 2007 with Forsyth Barr Group Limited relating to the underwriting of South Canterbury Finance’s offer of secured bonds in November 2007. That underwriting agreement was not called upon. On 11 April 2008, South Canterbury Finance acquired a 100% interest in Fairfield Finance Ltd. This company operates as a finance company in the Nelson region. The debentures and deposits in this company, as they mature, are being repaid or reinvested in South Canterbury Finance. Fairfield Finance Ltd became a member of the Charging Group on 30 June 2009. South Canterbury Finance entered into an underwriting agreement dated 19 May 2008 with Forsyth Barr Group Limited relating to the underwriting of South Canterbury Finance’s offer of secured bonds in May 2008. That underwriting agreement was not called upon. South Canterbury Finance entered into a deed of guarantee with the Crown, dated 19 November 2008, under the Deposit Guarantee Scheme. Further information about this scheme is set out on pages 30 to 32 of this Prospectus. A copy of the deed of guarantee may be inspected on the Companies Office website at www.companies.govt.nz or, free of charge, at the registered office of South Canterbury Finance. On 30 June 2009, the Company acquired a 33.6% interest in Dairy Holdings Limited from its parent company, Southbury Group Limited, for $75.73 million. The purchase price was met, in part, through the issue of 40 million new ordinary shares in the Company to Southbury Group Limited at an issue price of $1.00 each (which shares were credited as fully paid) with the balance of the purchase price being paid by the Company in cash. This transaction was reviewed by an independent expert approved by Treasury in accordance with the terms of the Company’s guarantee under the Deposit Guarantee Scheme. The independent expert confirmed that the transaction was on arm’s length terms and that the value paid by the Company for the interest in Dairy Holdings Limited represented fair value for the Company. The Company entered into a Deed of Underwrite and Guarantee with Mr A.J. and Mrs M.J. Hubbard, dated 14 August 2009, under which Mr A.J. and Mrs M.J. Hubbard agreed to underwrite losses which the Company may incur in respect of certain specified loans, up to a maximum aggregate amount of $25 million, by procuring the payment of that sum, or the transfer of assets of that value, to the Company. The obligations of Mr A.J. and Mrs M.J. Hubbard under the Deed of Underwrite and Guarantee are also limited to the value of the assets of North Wind Holdings (2009) Limited. Before entering the Deed of Underwrite and Guarantee, the Company satisfied itself as to the financial position of North Wind Holdings (2009) Limited and, therefore, the ability of Mr A.J. and Mrs M.J. Hubbard to meet their obligations under the underwrite and guarantee from the assets of North Wind Holdings (2009) Limited. Under these arrangements, the Company also entered into an Amending Deed of Underwrite and Guarantee providing for Subordination, dated 25 September 2009, under which the Company is able to ensure that North Wind Holdings (2009) Limited maintains sufficient net assets to enable Mr A.J. and Mrs M.J. Hubbard to meet their obligations under the Deed of Underwrite and Guarantee. A Noteholder Standstill Agreement dated as of 17 October 2009 was entered into between, amongst others, the Company and US Noteholders, which sets out the terms on which certain breaches and covenants are waived pending final form restructuring documents being entered into by the parties. In

 

 

 

24

addition, a Commitment Letter was entered into between the Company, Southbury Group Limited and US Noteholders as of 17 October 2009 setting out the revised terms and conditions to apply to their noteholder arrangements. The members of the Borrowing Group have not entered into any other material contracts within the last two years (not being contracts entered into in the ordinary course of business). Copies of the material contracts described above may be inspected, free of charge, at the registered office of South Canterbury Finance. Copies of the material contracts may also be obtained (possibly on payment of a fee) by telephoning the Companies Office Contact Centre on 0508 266 726. PENDING PROCEEDINGS In the opinion of the Directors, there are no legal proceedings or arbitrations pending that are likely to have a material adverse effect on the Borrowing Group. ISSUE EXPENSES The estimated amount of expenses for the issue of Stock and Deposits under this Prospectus, including brokerage, is $5 million and is payable by the Company. Commission (being brokerage as set out on page 22) in respect of the Stock and Deposits offered under this Prospectus may be paid by the Company to persons or firms who deal in the placing of securities in the normal course of their business in respect of Stock issued and Deposits accepted under this Prospectus. OTHER MATERIAL MATTERS On 1 October 2008, Auckland Finance Limited, Waikato Finance Limited, Palmerston North Finance Limited, Wellington Finance Limited, Tasman Bay Finance Limited, Canterbury Finance Limited, Ashburton Finance Limited, Otago Finance Limited and Southland Finance Limited (all of which companies were wholly-owned subsidiaries of South Canterbury Finance) amalgamated with South Canterbury Finance in accordance with the provisions of the Companies Act 1993. As a result of the amalgamation, the assets and liabilities of each of those wholly-owned subsidiaries now form part of the assets and liabilities of South Canterbury Finance. All of those wholly-owned subsidiaries (with the exception of Southland Finance Limited) were guaranteeing subsidiaries of South Canterbury Finance and were, therefore, members of the Borrowing Group and Charging Group. Accordingly, all of their assets were previously charged under the Trust Deed for the benefit of Stockholders and Depositors. Southland Finance Limited was not a guaranteeing subsidiary and, therefore, was not a member of the Borrowing Group or Charging Group prior to its amalgamation with the Company on 1 October 2008. As at 1 October 2008, Southland Finance Limited had assets of $62 million and liabilities of $48 million. Those liabilities included advances from South Canterbury Finance of $36.9 million, and first ranking secured debenture stock of $10.6 million and unsecured deposits of $0.2 million issued by Southland Finance Limited under its own trust deed. As a consequence of the amalgamation, the first ranking secured debenture stock issued by Southland Finance Limited now constitutes a permitted prior charge under the Trust Deed. As a result, it ranks for payment ahead of the Stock and Deposits offered by South Canterbury Finance under this Prospectus. As indicated above, Southland Finance Limited had first ranking secured debenture stock of $10.6 million on issue as at 1 October 2008. Accordingly, the amount of Prior Charges under the Trust Deed has increased from $3.2 million as at the date of amalgamation to $13.8 million. The amount of this Prior Charge will reduce as the first ranking secured debenture stock issued by Southland Finance Limited matures. Under the terms of issue, all of the first ranking secured debenture stock and unsecured deposits issued by Southland Finance Limited will mature by no later than February 2013. On maturity,

 

 

 

25

investors will have the option of having their funds repaid to them in cash or reinvesting those funds with South Canterbury Finance. Any amounts reinvested will no longer rank as a Prior Charge under the Trust Deed. As at 30 June 2009, the amount of the Southland Finance Limited first ranking debenture stock had further reduced to $3.2 million. The Company has elected for the Securities Regulations 1983 to apply to its offer of Stock and Deposits under this Prospectus. There are no other material matters relating to this offer of securities (other than contracts entered into in the ordinary course of business) which have not been set out in this Prospectus. CREDIT RATING The Company is required to have a credit rating from an approved agency by 1 March 2010 pursuant to the Reserve Bank Amendment Act 2009. On 19 March 2009, the Reserve Bank approved the following rating agencies for the purposes of that Act: •

Fitch Ratings;

•

Moody’s Investors Service; and

•

Standard & Poor’s Ratings Services.

On 17 February 2009, the Reserve Bank released a consultation paper proposing the type of credit rating non-bank deposit takers are required to hold from 1 March 2010. The paper proposes the use of local currency, long term, issuer ratings. The Company currently has a credit rating from Standard & Poor’s. As at the date of this Prospectus, the Company’s long term credit rating was BB+/Watch Negative, implying a one-in-two chance that the credit rating could be downgraded within three months. In the Company’s view, the CreditWatch Negative assignment reflects a number of factors outlined by Standard & Poor’s including: •

increasing pressure on liquidity;

•

still-weak asset quality;

•

governance matters (including, but not limited to, related party exposures);

•

the fact that the Company had ceased taking funds under its previous prospectus;

•

market guidance of an increase to its unaudited net after-tax loss for the year ended 30 June 2009 to $69 million; and

•

the fact that two of the Company’s Directors had resigned and had not been replaced.

In the Company’s view, Standard & Poor’s CreditWatch action was based on not having a debenture prospectus in the public domain, South Canterbury Finance’s funding flexibility and liquidity were undermined at the 'BB+' rating level, at least in the short term. In the Company’s view, this particular issue has been resolved through the registration of this Prospectus, which enables the Company to resume raising funds from the public through the issue of Stock and Deposits. Standard & Poor’s has not, however, been asked by the Company to confirm that through the registration of this Prospectus this matter has now been resolved. In the Company’s view, Standard & Poor’s considered that the United States private placement investors were continuing to review their funding support for the Company, and that if they decided to require

 

 

 

26

repayment of the facility, that would, potentially, significantly exacerbate liquidity concerns and cause a downward revision of the Company’s rating by multiple notches, potentially into the 'B' rating category. Conversely, Standard & Poor’s noted that, should United States private placement investors continue their funding support for South Canterbury Finance, downward rating pressure is likely to be less severe. As indicated above, the Company has reached an agreement with investors under the United States private placement under which it will make accelerated repayment of the principal sum of $US100 million to noteholders (together with interest on that sum) by way of instalments, with the last instalment being due on 31 March in full satisfaction of their rights and entitlements under their notes. In the Company’s view, if the credit rating is downgraded further, this may further impact the Company’s ability to raise funds from local and offshore institutions and investors under its offers of Stock and Deposits with the result that the Company may not be able to raise the funds it requires to fund its business activities and meet its payment obligations in respect of the Stock and Deposits offered under this Prospectus. A further downgrade may also impact on the Company’s eligibility to participate in the extended Deposit Guarantee Scheme (for further details refer to pages 31 to 32 of this Prospectus) and its ability to operate as a non-bank deposit taker under the Government’s proposed new regulatory regime for non-bank deposit takers. Standard & Poor’s (Australia) Pty Limited has given its consent to the inclusion of its credit rating for South Canterbury Finance and to being named in this Prospectus. Analytic services provided by Standard & Poor’s Ratings Services are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytical process. Analytic services and products provided by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Credit ratings issued by Standard & Poor’s Ratings Services are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of credit ratings issued by Standard & Poor’s Ratings Services should not rely on any such ratings or other opinion issued by Standard & Poor’s Ratings Services in making any investment decision. Ratings are based on information received by Standard & Poor’s Ratings Services. Other divisions of Standard & Poor’s may have information that is not available to Ratings Services. In Australia, credit ratings are assigned by Standard & Poor’s (Australia) Pty Limited, which does not hold an Australian financial services licence under the Corporations Act 2001. Standard & Poor’s (Australia) Pty Limited and its subsidiaries have not authorised or caused the issue of this Prospectus and have not made any statement that is included in this Prospectus or any statement on which a statement made in this Prospectus is based, other than as specified above. Standard & Poor’s (Australia) Pty Limited and its subsidiaries to the maximum extent permitted by law, expressly disclaim, and take no responsibility for any part of, this Prospectus, other than the reference to their names and the statements included in this Prospectus as specified above. GUARANTORS The following Subsidiary Companies have guaranteed the Stock and Deposits: Belfast Park Ltd, Braebrook Properties Ltd, Fairfield Finance Ltd, Flexi Lease Ltd, Galway Park Ltd, Helicopter Nominees Ltd, Hornchurch Ltd, Rental Cars Ltd, SCFG Systems Ltd, Sophia Investments Ltd, Southbury Insurance Ltd and Tyrone Estates Ltd all of which are wholly owned, and Face Finance Ltd, which is 75% owned. In addition, South Canterbury Finance has a guarantee under the Deposit Guarantee Scheme. See pages 30 to 32 of this Prospectus for further information about this scheme. There are no other guarantors. ACQUISITION OF BUSINESS OR SUBSIDIARY During the period of two years preceding the date of registration of this Prospectus, no member of the Charging Group acquired a business and no member of the Charging Group became a subsidiary of the

 

 

 

27

Company where the consideration for that business or subsidiary exceeded one-fifth of the total tangible assets shown in the statement of financial position for the Charging Group set out on page 34 of this Prospectus. Galway Park Ltd was incorporated on 1 April 2008 and became a Charging Subsidiary. Belfast Park Ltd, Braebrook Properties Ltd, Tyrone Estates Ltd and Fairfield Finance Ltd became members of the Charging Group on 30 June 2009. No other companies have been added to the Charging Group during this period. ASSET BACKING Based on the audited Financial Statements of the Company and the Charging Subsidiaries as at 30 June 2009, after the issue of up to $500,000,000 of additional Stock under this Prospectus, excluding any funds raised by way of Deposits, each $100 worth of Stock issued by the Company will have an asset backing of $111. RESTRICTIONS ON DIRECTORS’ POWERS The following modifications, exceptions or limitations on the powers of the Board are imposed by the Companies Act 1993: (a)

the Board may not delegate the powers conferred on it by the sections of the Companies Act 1993 listed in the Second Schedule to that Act;

(b)

the Board may not authorise a dividend in respect of some but not all of the shares in a class, or that is of a greater value per share in respect of some shares of a class than it is in respect of other shares of that class, otherwise than in proportion to the amount paid on the share in satisfaction of the shareholder’s liability, except where a shareholder has waived its entitlement;

(c)

the Directors may not authorise entry into a “major transaction” unless the transaction is approved by, or contingent on approval by a special resolution. In general terms, a “major transaction” is a transaction, the value of which exceeds half the value of South Canterbury Finance’s assets before the transaction;

(d)

South Canterbury Finance may not take any action that affects the rights attached to any shares unless the action has been approved by special resolution of each interest group affected; and

(e)

South Canterbury Finance may not buy back or redeem any of its equity securities, or give financial assistance in connection with the acquisition of any of its equity securities, except as permitted by the Companies Act 1993, the terms of the Trust Deed and its constitution.

The Companies Act 1993 and South Canterbury Finance’s constitution do not impose any further modifications, exceptions or limitations on the powers of the Board to manage, supervise or direct the management of, the business and affairs of South Canterbury Finance other than the modifications, exceptions or limitations which are required to be imposed on the Board under the Listing Rules or modifications, exceptions or limitations which are otherwise disclosed in this Prospectus. RESTRICTIONS ON BORROWING GROUP In addition to the restrictions set out in the section of this Prospectus headed “Main Provisions of the Trust Deed”, the agreement for the issue of notes to investors under the United States private placement provides that South Canterbury Finance is not to permit its subsidiaries to incur indebtedness other than as permitted under that agreement. In essence, the total indebtedness of South Canterbury Finance’s subsidiaries cannot exceed, in total, more than 70% of “Consolidated Total Assets” (being all of the assets of the South Canterbury Finance Group of Companies). This restriction does not apply, amongst other matters, to indebtedness that existed as at the date of the agreement and indebtedness arising under the guarantee given by the Charging Subsidiaries in respect of the Stock and Deposits. The agreements with US noteholders also restrict Charging Subsidiaries from undertaking certain transactions with non-charging subsidiaries or certain affiliates.

 

 

 

28

OTHER TERMS OF OFFER AND SECURITIES All of the terms of the offer of Stock and Deposits under this Prospectus, and all of the terms of the Stock and Deposits, are set out in this Prospectus, except those: (a)

implied by law; or

(b)

which are set out in a document that has been registered with a public official, is available for public inspection and is referred to in this Prospectus.

DIRECTORS’ STATEMENT The Directors, after due enquiry by them in relation to the period between 30 June 2009 and the date of registration of this Prospectus, are of the opinion that no circumstances have arisen that materially adversely affect: (a)

the trading and profitability of the Charging Group;

(b)

the value of the Charging Group’s assets; or

(c)

the ability of the Charging Group to pay its liabilities due within the next 12 months.

GROUP, BORROWING GROUP AND CHARGING GROUP References in this prospectus to ‘Group’, ‘Borrowing Group’ and ‘Charging Group’ all mean the Company and its Guaranteeing Subsidiaries. This Prospectus is signed as follows: Signed by each Director of South Canterbury Finance (or by his agent authorised in writing):

ALLAN JAMES HUBBARD

 

 

EDWARD ORAL SULLIVAN

 

29

NEW ZEALAND DEPOSIT GUARANTEE SCHEME As indicated above, South Canterbury Finance has a guarantee under the Deposit Guarantee Scheme. In broad terms, this means that the Crown guarantees the payment of principal and interest on Stock and Deposits (up to $1 million for each eligible investor): (a)

if and to the extent those amounts are, or become, payable before the Deposit Guarantee Scheme expires at 12.01am on 12 October 2010; and

(b)

South Canterbury Finance does not, for any reason, pay those amounts.

In addition, Stock and Deposits which would otherwise mature after the expiry of the Deposit Guarantee Scheme will, subject to the terms of the Deposit Guarantee Scheme, have the benefit of the Crown guarantee if there is an insolvency event in respect of the Company during the term of the Crown guarantee. In particular, the Deposit Guarantee Scheme provides that the Crown: (a)

guarantees to eligible Stockholders and Depositors the payment by South Canterbury Finance of the amounts payable by it in respect of the Stock and/or Deposits (up to a maximum amount of $1 million per eligible Stockholder or Depositor, which amount includes all other amounts payable by South Canterbury Finance to the Stockholder or Depositor in respect of any other debt securities of South Canterbury Finance held by that Stockholder or Depositor) in the period from the date of issue until 12.01 am on 12 October 2010 (being the current expiry date of the Deposit Guarantee Scheme); and

(b)

undertakes to each eligible Stockholder and Depositor that if South Canterbury Finance does not pay to it when due and payable any amount payable in respect of the Stock and/or Deposits during the period of the Deposit Guarantee Scheme, then the Crown will pay that amount to the Stockholder and/or Depositor when it is due and payable (unless any such payment has not been made by South Canterbury Finance solely as a result of an administrative error or technical error and is subsequently paid by South Canterbury Finance within seven days of its due date).

In order for a Stockholder and/or Depositor to have the benefit of the Deposit Guarantee Scheme: (a)

they must be a “Creditor” within the meaning of the Deposit Guarantee Scheme;

(b)

they must provide the Crown with a notice of claim in respect of the amount payable to it by South Canterbury Finance; and

(c)

the Crown will need to satisfy itself as to the amount payable to the Stockholder or Depositor by South Canterbury Finance and as to such other matters as the Crown reasonably considers appropriate to determine the extent of its liability to that Stockholder or Depositor under the Deposit Guarantee Scheme.

The Deposit Guarantee Scheme does not apply to all investors. Accordingly, potential investors in the Stock and Deposits should satisfy themselves that the Deposit Guarantee Scheme applies to them. If the Deposit Guarantee Scheme is withdrawn by the Crown in the future, whether due to a breach of the terms of the Deposit Guarantee Scheme or the Crown guarantee under it by South Canterbury Finance or otherwise, the Deposit Guarantee Scheme will (subject to the terms of the guarantee) continue to apply to all Stock and Deposits issued prior to the date of withdrawal. As indicated above, the Deposit Guarantee Scheme expires at 12.01am on 12 October 2010 and only applies to amounts payable by South Canterbury Finance in respect of Stock and Deposits to eligible

 

 

 

30

investors prior to the expiry of the Deposit Guarantee Scheme. It will not apply to any amounts required to be paid by South Canterbury Finance in respect of any Stock or Deposits which become payable, in accordance with the terms of the Stock or Deposits, after the expiry date of the Deposit Guarantee Scheme. During the term of the Deposit Guarantee Scheme, South Canterbury Finance will need to comply with the restrictions imposed under the Deposit Guarantee Scheme. In particular, South Canterbury Finance must not, and must ensure that its subsidiaries do not, without the prior written consent of the Crown: (a)

make any distribution (within the meaning of the Companies Act 1993) on the ordinary shares of South Canterbury Finance other than: (i) through a redemption of shares which it is required to make in accordance with the terms of those shares (in place as at 12 October 2008) (other than shares which are redeemable at the option of the holder and which are held by any person who controls, or who is under common control with, South Canterbury Finance); (ii) the payment of fixed dividends on shares which are required to be made in accordance with the terms of those shares (in place as at 12 October 2008); (iii) the payment of dividends provided the aggregate amount of such dividends in any financial year does not exceed the profit for the previous financial year of South Canterbury Finance (as shown in its annual financial statements for that year); or (iv) the making of a distribution by a subsidiary of South Canterbury Finance to South Canterbury Finance or to any other member of the South Canterbury Finance Group; or

(b)

enter into any transaction (or series of linked or related transactions) having a value exceeding 1% of the value of South Canterbury Finance’s assets otherwise than on arm’s length terms; or

(c)

enter into any transaction (or series of linked or related transactions) having a value exceeding 1% of the value of South Canterbury Finance’s assets with any person who controls, or who is under common control with, South Canterbury Finance (other than a wholly-owned subsidiary of South Canterbury Finance) unless: (i) that transaction is on arm’s length terms; and (ii) an independent expert approved by the Crown in writing has certified to the Crown in writing that the transaction is, in the opinion of the expert, on arm’s length terms.

Further information about the Deposit Guarantee Scheme is available, free of charge and at all reasonable times, on the Internet site maintained by, or on behalf of, the Treasury (www.treasury.govt.nz). In addition, the most recent audited statement of financial position of the Crown is available, free of charge, and at all reasonable times, on the Internet site maintained by, or on behalf of, the Treasury. On 9 September 2009, the Crown Retail Deposit Guarantee Scheme Act 2009 was passed. This Act extends the current Deposit Guarantee Scheme for a further 14 months to 31 December 2011 but on materially different terms to those of the current Deposit Guarantee Scheme. A number of the key terms of the existing Deposit Guarantee Scheme will be amended under the extended scheme after 12 October 2010, including: •

 

eligible non-bank deposit takers will be guaranteed to a maximum of $250,000 per depositor per institution and eligible bank deposit takers will be guaranteed to a maximum of $500,000 per depositor per institution;

 

 

31

•

fees paid by participating institutions will be changed to reflect the risk profile of the relevant institution. Thresholds in the current scheme will be discontinued and the fees will apply to all funds in the new scheme;

•

deposit taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating or no credit rating will not be eligible despite being the beneficiary of a Crown guarantee under the current terms of the New Zealand Deposit Guarantee Scheme; and

•

eligible deposit taking institutions may apply to participate in the extended deposit guarantee scheme in respect of some or all debt securities issued by that institution, provided that any such debt securities that are to be guaranteed under the Deposit Guarantee Scheme fall within all other terms and conditions of the Deposit Guarantee Scheme.

In addition, institutions will need to meet certain eligibility criteria in order to be eligible to apply for participation in the new extended scheme. The Company currently intends applying to participate in the extended scheme. However, as at the date of this Prospectus, the Company has not made a final decision on whether or not to apply to participate in the extended scheme. That decision will depend on the Company’s view on the benefits it and investors in its Stock and Deposits will receive compared to the cost involved in participating in that scheme. Based on publicly available information as at the date of this Prospectus, the Company is of the view that it will meet the criteria for participation in the extended scheme. However, in order for an applicant to be accepted for participation in the extended scheme, the Secretary to the Treasury must be satisfied that it is necessary or expedient in the public interest for the applicant to be accepted into the scheme. The Company does not currently have a Crown guarantee beyond the expiry of the Deposit Guarantee Scheme at 12.01 am on 12 October 2010 and there is no assurance that it will have a Crown guarantee after that time.

 

 

 

32

SOUTH CANTERBURY FINANCE LTD AND CHARGING SUBSIDIARY COMPANIES – SUMMARY FINANCIAL INFORMATION SUMMARY OF FINANCIAL STATEMENTS The following information has been extracted from the audited financial statements of South Canterbury Finance and the Charging Subsidiary Companies for the past five years. (NZ IRFS means the New Zealand equivalent to the International Financial Reporting Standards. Prior NZ GAAP are the accounting rules that applied prior to the adoption of NZ IFRS). The Auditor’s Report in respect of the Borrowing Group’s financial statements for the year ended 30 June 2009 while unqualified states that there is a “fundamental uncertainty” regarding the validity of the going concern assumption on which these financial statements were prepared. Further information is set out in the Auditor’s Report on page 72 of this Prospectus. The Financial Statements for the Company and the Charging Group (including the associated notes) for the period ended 30 June 2009 are set out on pages 44 to 71 of this Prospectus. INCOME STATEMENT

Year to 30 June ($000’s)

30/06/2009

30/06/2008

30/06/2007

30/06/2007

30/06/2006

30/06/2005

Audited

Audited

Audited

Audited

Audited

Audited

NZIFRS

NZIFRS

NZIFRS

NZ GAAP

Prior NZ

Prior NZ

GAAP

GAAP

Gross Revenue

294,100

275,563

198,044

200,101

162,881

131,971

Interest Expense

179,545

130,575

101,489

101,489

81,108

57,207

Net Profit/(Loss) Before Taxation

-71,849

71,781

46,394

49,350

38,707

30,276

Less Subvention Payments

-

4,036

11,445

11,445

5,268

-

Less Taxation Provision

-14,035

7,297

1,046

1,744

6,190

3,776

Net Profit/(Loss) After Taxation

-57,814

60,448

33,903

36,161

27,249

26,500

Ordinary Shares:

24,027

34,000

23,000

23,000

21,000

17,300

Cents per Share

18.48

48.57

32.9

32.9

46.67

69.20

Distributions:

Preference Shares

7,894

8,666

6,386

6,386

Cents per Share

6.58

7.22

1.80

1.80

17,782

4,517

6,775

Profits Retained in the

-89,735

3,986

2,574

10.25/11.09

6.25/10.25

2,263

6,626

Charging Group

 

 

 

33

BALANCE SHEET

Year to 30 June ($000’s)

30/06/2009

30/06/2008

30/06/2007

Audited

Audited

Audited

Audited

Audited

Audited

NZIFRS

NZIFRS

NZIFRS

NZ GAAP

Prior NZ

Prior NZ

GAAP

GAAP

176,381

133,597

30/06/2007

30/06/2006

30/06/2005

Assets Cash and Cash Equivalents Other Short Term Deposits

123,275

401,244

136,585

136,585

287

253

231

231

215

202

NZ Government Stock

1,018

503

507

507

509

513

Sundry Current Assets

63,702

44,681

35,935

35,935

27,383

18,105

Property Held for Resale

52,381

5,920

-

-

-

-

Shares and Investments

318,429

85,294

126,858

107,594

48,328

21,795

Financial Assets at Fair Value for

36,833

-

-

-

-

-

1,629,969

1,380,307

1,251,314

1,251,126

1,003,832

815,546

Property, Plant and Equipment

104,545

44,820

54,428

53,232

30,256

31,266

Deferred Tax

24,120

7,579

1,720

-

-

-

2,354,559

1,970,601

1,607,578

1,585,210

1,286,904

1,021,024

-

1,427

1,604

1,604

-

-

2,354,559

1,972,028

1,609,182

1,586,814

1,286,904

1,021,024

21,213

23,680

32,595

14,899

15,010

12,900

-

4,491

-

-

-

-

-

-

-

1,262

955

810

Borrowings

2,107,503

1,695,833

1,366,781

1,371,648

1,143,323

901,560

Total Liabilities

2,128,716

1,724,004

1,399,376

1,387,809

1,159,288

915,270

225,843

248,024

209,806

199,005

127,616

105,754

222,673

245,636

208,398

197,597

127,106

105,715

3,170

2,388

1,408

1,408

510

39

225,843

248,024

209,806

199,005

127,616

105,754

Trading Advances

Total Tangible Assets Goodwill Total Assets

Liabilities Creditors Financial Assets at Fair value for trading Deferred Tax

Net Assets

Equity Attributable to Parent Company Minority Interest Total Equity

 

 

 

34

MAIN PROVISIONS OF THE TRUST DEED DESCRIPTION OF DEBENTURE STOCK AND DEPOSITS The Stock and Deposits are created and issued pursuant to the terms of the Trust Deed dated 12 April 1976 (as amended by an Amending and Supplemental Trust Deed dated 30 June 1995, a Deed of Amendment dated 25 March 1999 and a Deed of Modification dated 4 February 2003) hereinafter called “the Trust Deed”, and made between the Company, the Charging Subsidiaries of the Company, as guarantors of the Stock and Deposits, and Trustees Executors Ltd as Trustee for the Stockholders and Depositors. Following the amalgamation of certain wholly-owned finance companies with the Company on 1 October 2008, the Charging Subsidiaries are Belfast Park Ltd, Braebrook Properties Ltd, Fairfield Finance Ltd, Face Finance Ltd, Flexi Lease Ltd, Galway Park Ltd, Helicopter Nominees Ltd, Hornchurch Ltd, Rental Cars Ltd, SCFG Systems Ltd, Sophia Investments Ltd, Southbury Insurance Ltd and Tyrone Estates Ltd. The Trust Deed provides for the issue by the Company of: (a)

First and Second Ranking Stock (including Bearer Stock);

(b)

Security Stock and Variable Notes; and

(c)

Unsecured Deposits.

The Trust Deed contains a floating charge and security interest given by the Company and each of the Charging Subsidiaries over all their undertakings, property and assets, both present and future in relation to the Stock. Deposits and Variable Notes are not secured by any charge. Neither the repayment of the Stock nor Deposits nor the payment of interest thereon is guaranteed by the Trustee. The Trust Deed prohibits South Canterbury Finance and each Charging Subsidiary from making any distribution (as defined in the Companies Act 1993) except in accordance with applicable laws and only to the extent that such distribution will not constitute a breach of the Trust Deed. It is an event of default under the Trust Deed if South Canterbury Finance, without the prior written consent of the Trustee, makes any distribution (as defined in the Companies Act 1993) while any principal or interest due and payable under any securities issued under the Trust Deed remains unpaid due to the default of South Canterbury Finance or a Charging Subsidiary. Further, the Trust Deed provides that neither South Canterbury Finance nor a Charging Subsidiary may borrow money from, or lend money to, a Non-Charging Related Company (as defined in the Trust Deed) on terms or security which are more favourable to such Non-Charging Related Company than those offered by South Canterbury Finance or the Charging Subsidiary (as the case may be) to other unrelated borrowers or lenders (as the case may be) of a comparable financial status. In accordance with the New Zealand Government’s on-going review of the regulatory framework that applies to New Zealand’s financial services sector, and as a result of recent finance company receiverships, the Securities Regulations 1983 were amended in September 2007 to provide trustees with additional powers in relation to their supervision of the activities of finance companies. These powers, which are deemed to be contained in the Trust Deed, include the power to appoint an independent auditor to audit the financial statements of the borrowing group of the Company, and to appoint an expert to assist the Trustee to determine the true financial position of the Company, and recover the fees and expenses from the Company. This is in addition to the other powers described under the heading “Duties of the Trustee” on page 41. Finance companies also have new additional reporting obligations under the regulations, such as the obligation to provide regular reports to the Trustee about the Company’s financial position and to regularly certify compliance with the Trust Deed. JOINING OF NEW AND RELEASE OF EXISTING CHARGING SUBSIDIARIES Each wholly owned subsidiary of South Canterbury Finance is required to become a member of the Charging Group subject to the terms and conditions of the Trust Deed. This requirement is subject only to the Trustee having the discretion to not require a particular subsidiary to become a member of the

 

 

 

35

Charging Group if two Directors of the Company certify that there are sound commercial reasons why the subsidiary should not become a Charging Subsidiary. Notwithstanding any such exclusion from the Charging Group, the Trustee may subsequently withdraw such dispensation and require the subsidiary to become a Charging Subsidiary. The Trustee may at any time before a Date of Enforcement without any approval by the Stockholders and/or Depositors release any Charging Subsidiary from its guarantee and other obligations under the Trust Deed and/or release any part of the Charged Assets from the operation of any charges created by or pursuant to the Trust Deed on such terms as the Trustee thinks fit unless, in the opinion of the Trustee, the interests of the Stockholders and/or Depositors would be materially prejudiced. RANKING OF SECURITIES The Company and the Charging Subsidiaries are (subject to the financial ratios listed below, one of which relates to Prior Charges, and no Date of Enforcement having occurred) at liberty to give security in any form to their creditors in priority to the Trust Deed provided that such Prior Charges must not exceed 7.5% of Total Tangible Assets (as defined in the Trust Deed) except in certain circumstances where, for a limited time, Prior Charges can increase to 10% of Total Tangible Assets. As at 30 June 2009, the aggregate amount of securities that were secured by a mortgage or charge over any of the assets of the Charging Group and that ranked in point of security: (a)

ahead of the Stock being offered under this Prospectus, was $34.123 million; and

(b)

ahead of the Deposits being offered under this Prospectus, was $2,045.207 million.

The amount of First Ranking Stock outstanding as at 30 June 2009 was $2,073.38 million, all of which ranks equally with the Stock offered under this Prospectus, and ahead of unsecured creditors and Deposits. This amount includes funds raised under the Company’s bond issues and the funds raised under the United States private placement. As indicated in the Chief Executive’s Report, the Company currently intends borrowing up to $75 million by way of a prior ranking charge and may over time borrow by way of prior charges the full amount permitted under the Trust Deed. All Deposits (including Variable Notes) rank in point of security behind all First and Second Ranking Stock. The Trust Deed enables the Company to issue additional Stock and Deposits ranking equally as to priority with existing Stock and Deposits and the Stock and Deposits offered under this Prospectus. RESTRICTION OF STOCK AND OTHER LIABILITIES In the Trust Deed, the Company and the Charging Subsidiaries covenant with the Trustee that none of them will at any time: (a)

 

Permit the aggregate of:

 

(i)

the Principal Moneys (other than amounts contingently owing) of First and Second Ranking Stock;

(ii)

the amount of Total Contingent Liabilities secured by First Ranking Security Stock; and

(iii)

the principal amounts outstanding under Prior Charges to exceed the aggregate of: (aa)

98% of Total Readily Realisable Investments;

(bb)

92% of Total Secured Receivables;

 

36

(cc)

85% of Total Unsecured Receivables;

(dd)

70% of Total Real Property; and

(ee)

70% of Total Other Tangible Assets.

As at 30 June 2009, the weighted value of assets set out in (a) (iii) (aa) to (ee) above exceeded the combined amount of Principal Monies of First and Second Ranking Stock, Total Contingent Liabilities secured by First Ranking Security Stock and principal monies secured by Prior Charges by $1.628 million. (b)

Permit the Total Liabilities (excluding Total Contingent Liabilities) to exceed an amount equal to 12 times Shareholders’ Funds. As at 30 June 2009, Total Liabilities exceeded Shareholders’ Funds by 9.26 times.

(c)

Permit the aggregate book value of equity securities (as defined in the Securities Act) in any Person (other than the Company and the Charging Subsidiaries) held by the Company and the Charging Subsidiaries other than any of the equity securities held as security for financial accommodation extended by the Company or a Charging Subsidiary or held as a consequence of the enforcement of any security interest to exceed 100% of the aggregate amount of Shareholders’ Funds excluding the book value of any holding by the Company of listed equity securities at the Commencement Date as notified in writing to the Trustee. As at 30 June 2009, the aggregate book value of all such equity securities held by the Charging Group represented 90.56% of Shareholders’ Funds.

(d)

Permit the Exposure to any Person or any Single Group to exceed an amount equal to 35% of Shareholders’ Funds provided that, subject in all cases to compliance with (c) above, such limitation shall not apply where the Exposure of the Company and the Charging Subsidiaries to a Person or Single Group is more than 35% of Shareholders’ Funds at the Commencement Date as notified in writing to the Trustee. As at 30 June 2009, the largest single exposure (excluding banks and Southbury Group and various of its subsidiaries) represented 33.5% of Shareholders’ Funds.

(e)

Permit the Total Contingent Liabilities to exceed 150% of Shareholders’ Funds. As at 30 June 2009, Total Contingent Liabilities were 4% of Shareholders’ Funds.

(f)

Permit Prior Charges to exceed 7.5% total tangible assets. As at 30 June 2009, Prior Charges were 1.2% of total tangible assets.

(g)

The Trust Deed also restricts disposal of assets to, and the giving of guarantees on behalf of, NonCharging Subsidiaries.

Further to paragraph (d) above and for the purpose of clarification, it is noted that, at the Commencement Date (being June 1995), there existed Exposures to Southbury Group Limited (the Company’s parent company) and various other subsidiaries of Southbury Group Limited. Individually, these Exposures did not as at the Commencement Date (nor did they as at 30 September 2009) exceed 35% of Shareholders’ Funds. However, when combined as a single entity through ownership by Southbury Group Limited, the 35% threshold was exceeded at the Commencement Date. Accordingly, the restriction referred to in paragraph (d) above does not apply with the result that the exposure to Southbury Group Limited entities is not taken into account for the purposes of this restriction in accordance with the exclusion provided in the Trust Deed. This Exposure includes loans to subsidiaries of South Canterbury Finance which are not charged under the Trust Deed.

 

 

 

37

ISSUE OF STOCK AND UNSECURED DEPOSITS The Trust Deed authorises the Company to issue Stock (including Security Stock to banks or other lenders as security for banking facilities and/or liabilities and also Bearer Stock) which is secured by the floating charge contained in the Trust Deed, and Deposits. Issues may be made from time to time provided the Company does not breach the limitations imposed by the Trust Deed. The Stock of this issue ranks equally with all other Stock on issue for the time being regardless of maturity dates, including Stock referred to in the Deed as Existing Stock. Deposits rank equally with other unsecured debts and all other Deposits which may have been or are hereafter issued under the Trust Deed. DEFINITIONS Earlier in this Prospectus there is an outline of the financial restrictions which the Trust Deed imposes on the Charging Group. The following are the definitions in the Trust Deed of expressions: “Charging Subsidiaries” means the guaranteeing subsidiaries as described on page 23. “Commencement Date” means 30 June 1995 or such date that the Company and the Trustee agree in writing. “Deposits” means all amounts from time to time deposited with and accepted by the Company as unsecured deposits constituted under the Trust Deed, and for the time being outstanding, or a specified position thereof as the case may require, and includes the Principal represented thereby, and includes as the context permits or requires, Variable Notes. “Exposure” means the aggregate of: (a)

all amounts (other than uncapitalised interest) payable on any account to the Charging Group and any amount which the Charging Group is or would if requested be obliged to advance or otherwise make available under any undrawn commitment of the Charging Group to the relevant Single Group or Person, (which for purposes of this subparagraph (a) excludes any deposits with, or credit balances with, a Bank or any other amounts payable or owing by any Bank), but does not include amounts payable to the Charging Group from any assignor in respect of the assignment (whether absolute or by way of charge) to the Charging Group or any securities given to the assignor in the ordinary course of the business of the assignor or given to the assignor in respect of or to secure transactions entered into by the assignor in the ordinary course of its business provided that the aggregate amount payable under such assigned security is owed by an independent third party and is not less than the amount payable to the Charging Group from the assignor in respect of the assignment; and

(b)

all amounts paid or payable by the Charging Group on account of any equity subscription or other investment in any other Person or Single Group.

“First Ranking Security Stock” means First Ranking Stock issued pursuant to and in accordance with clause 4.5(a) of the Trust Deed. “First Ranking Stock” means all Stock constituted and issued by the Company as First Ranking Stock (including all First Ranking Security Stock) under and pursuant to the Trust Deed from time to time outstanding and ranking for Principal and interest in priority to Second Ranking Stock and Deposits. (First Ranking Stock ranks behind permitted Prior Charges and statutorily preferred claims). “Person” includes an individual, a person sole and any association of persons whether corporate or unincorporate, any government or department or agency thereof and any legislative body, authority or agency whether having separate legal personality or not.

 

 

 

38

“Principal Moneys” means: (a)

in relation to Security Stock, the Security Stock Equally Ranking Amount in respect of such Stock;

(b)

in relation to Variable Notes, the Variable Notes Equally Ranking Amount in respect of such Deposits Notes; and

(c)

in relation to Securities other than Security Stock and Variable Notes, the amount (other than interest) payable on redemption of the Securities inclusive of the premium (if any) on the Security payable in accordance with the conditions of issue of such Securities.

“Prior Charge” means any Charge on the Charged Assets or any part of the Charged Assets ranking in priority to the charges in favour of the Trustee created by or pursuant to the Trust Deed or as the case requires the principal amounts secured by such Charge but shall not include any Charge of the kind referred to in section 102(11)(b) of the Companies Act 1955 or any Charge which is secured solely over Assets which for any reason is not taken into account in the calculation of Total Tangible Assets used in the financial ratios in clause 16 of the Trust Deed. “Reference Date” means the date at which a calculation is to be made for the purposes of the Trust Deed. “Second Ranking Security Stock” means all Stock constituted and issued by the Company as Second Ranking Stock (including all Second Ranking Security Stock) under and pursuant to the Trust Deed from time to time outstanding and ranking for Principal and interest immediately after the First Ranking Stock and includes the Principal Moneys represented thereby. No Second Ranking Security stock is currently outstanding nor is any being offered in this Prospectus. “Security Stock” unless the context otherwise requires, includes First Ranking Security Stock and Second Ranking Security Stock. “Shareholders’ Funds” means the aggregate of: (a)

the amount by which the Total Tangible Assets of the Charging Group exceeds the Total Liabilities of the Charging Group (as would be disclosed in a Balance Sheet if one was prepared at the Reference Date); and

(b)

the estimated net proceeds of that portion of any proposed increase in the issued share capital of the Company which is payable in cash within three months of the date at which the calculation of the above amounts is being made and which is Underwritten, to the extent that the proposed increase in paid up capital is (according to a Directors’ Certificate) intended to be applied within three months in or towards satisfaction of Liabilities other than Convertible Notes or Subordinated Debt; adjusted by deducting:-

(c)

the book value of all Assets of the Charging Group which are situated overseas and which are not charged in favour of the Trustee to the Trustee’s satisfaction.

“Single Group” means a group of companies or a partnership or any other commercial association of Persons which, for trading, consolidation of accounts, raising of credit, debenture trust deed or other commercial purposes acts as one group. “Stock” means all securities by whatever name called from time to time issued on the basis that they are secured by and have the benefit of the charges over the Charged Assets created by or pursuant to the Trust Deed and that are still outstanding, or a specified portion thereof as the case may require, and includes the Principal Moneys represented thereby.

 

 

 

39

“Total Contingent Liabilities” means the aggregate of all uncalled capital held by the Charging Group in any External Person, plus the aggregate of all other Contingent Liabilities of the Charging Group under financial guarantees, indemnities, bonds or other similar binding financial obligations in respect of or for the benefit of any External Person, but does not include Contingent Liabilities: (a)

which are secured to the Charging Group to the satisfaction of the Trustee or in respect of which the Company or any Charging Subsidiary has to the satisfaction of the Trustee a right of subrogation to a security approved by the Trustee;

(b)

in respect of which any Charging Group Member has been guaranteed or indemnified to the satisfaction of the Trustee; or

(c)

whereby any Charging Group Member guarantees the payment of moneys under any lease of Real Property by any Charging Group Member or improvements situated thereon,

provided always that in respect of any such financial guarantee, bond, indemnity or other similar binding financial obligation the Contingent Liability under which is joint and several or several the amount to be included shall be limited to a proper proportionate part of such liability if in the opinion of the Directors the other parties to such obligation will be able to meet their proportionate liability thereunder. “Total Liabilities” means the aggregate of the amounts of all Liabilities of the Charging Group Members as would be disclosed in a Balance Sheet if one was prepared as at the Reference Date and adjusted by deducting from those Liabilities: (a)

the Convertible Note Amount; and

(b)

all Subordinated Debt.

“Total Other Tangible Assets” means the Total Tangible Assets of the Charging Group other than: (a)

Total Readily Realisable Investments;

(b)

Total Secured Receivables;

(c)

Total Unsecured Receivables; and

(d)

Total Real Property.

“Total Readily Realisable Investments” means the aggregate of the Market Worth of all Readily Realisable Investments of the Charging Group as would be disclosed in a Balance Sheet if one was prepared as at the Reference Date. “Total Real Property” means the aggregate of the Market Worth of all Real Property of the Charging Group comprised in the Charged Assets as would be disclosed in a Balance Sheet if one was prepared as at the Reference Date. “Total Secured Receivables” means the aggregate of the Market Worth of all Secured Receivables of the Charging Group as would be disclosed in a Balance Sheet of the Charging Group if one was prepared as at the Reference Date. “Total Unsecured Receivables” means the aggregate of the Market Worth of all Unsecured Receivables of the Charging Group as would be disclosed in a Balance Sheet of the Charging Group if one was prepared as at the Reference Date.

 

 

 

40

REPORTS TO THE TRUSTEE The Company and the Charging Subsidiaries are required to produce audited accounts half yearly and copies of these accounts must be supplied to the Trustee together with a report by the auditor as to the compliance by the Charging Group with the terms of the Trust Deed and providing information as to Stock and Deposits on issue, Prior Charges, the liabilities of the Charging Group and the various assets at balance date. The Directors of the Company must also report at the same time as the accounts are supplied and provide certificates to the Trustee certifying that the various covenants and restrictions have been met. In addition, the Directors are required to make quarterly reports to the Trustee. DUTIES OF THE TRUSTEE The following is a summary of the duties of the Trustee: 1.

To receive and consider the regular financial reports furnished to it by the Company and its Auditors.

2.

On the basis of the provisions of the Trust Deed including any limitations arising from them to oversee compliance by the Company with all its covenants and obligations under the Trust Deed and the terms or conditions of issue of any Stock or Deposits.

3.

To take and hold all charges by the Company and Charging Subsidiaries provided for by the Trust Deed.

4.

To exercise its discretion whether to enforce the security constituted by the Trust Deed upon the happening of an event of default in the circumstances outlined in the Trust Deed.

5.

To enforce the security constituted by the Trust Deed upon the happening of an event of default in the circumstances outlined in the Trust Deed and upon the request in writing of the registered holders of at least one-fifth in nominal amount of the Stock or Deposits for the time being outstanding or upon being directed to do so by an Extraordinary Resolution. The Trustee also has certain duties by virtue of the provisions of the Securities Act 1978 and the Securities Regulations 1983.

6.

To exercise reasonable diligence to ascertain whether or not any breach of the terms of the Trust Deed or of the terms of this offer has occurred and except where it is satisfied that the breach will not materially prejudice the security of the Stock or the interest of the Stockholders, shall do all such things as it is empowered to do to cause any breach of those terms to be remedied.

7.

To exercise reasonable diligence to ascertain whether or not the assets of the Charging Group are or are likely to be sufficient to repay the amounts of Stock and Deposits as these fall due.

8.

In addition to the duties set out in paragraphs 6 and 7 above, to exercise the rights of the Trustee and monitor the Company’s compliance with its obligations under the Securities Regulations, as described on page 35 of this Prospectus.

MODIFICATIONS The Trust Deed permits the Trustee to agree with the Company in making certain modifications to the provisions of the Trust Deed described above if: the change is of a formal or technical nature; or is considered by the Trustee not to be or become prejudicial to the general interests of Securityholders; or if the Trustee is satisfied the change will not be inconsistent with provisions accepted for debenture trust deeds of financial intermediaries; or if the change is authorised by an Extraordinary Resolution or the Securityholders approve the change in writing. The Trustee can also agree to a temporary variation of the Trust Deed with the prior written approval of the Majority of Stockholders.

 

 

 

41

WAIVER The Trust Deed permits the Trustee to waive in whole or in part, and for a specified period or indefinitely, any breach or anticipated breach by the Charging Group of any of the provisions of the Trust Deed, subject to: the Trustee being satisfied that the general interests of the Securityholders will not be materially prejudiced by the waiver, and any direction or request given by Securityholders in terms of the Trust Deed. ENFORCEMENT At the option of the Trustee, the Stock and Deposits become immediately due and repayable and the security enforceable if there is any default in the payment on due date of the Principal Moneys secured by the Stock or the Existing Stock or if, after a period of 14 days from the due date, any interest remains outstanding. Similarly, Stock and Deposits become payable and, in relation to the Stock, the security enforceable if there is any breach of the covenants of the Trust Deed or upon the happening of a number of other events which are specified. MEETINGS OF STOCKHOLDERS AND DEPOSITORS The Trust Deed provides for meetings of Stockholders and Depositors and the matters which may be determined by Extraordinary Resolution. Either the Trustee or the Company may convene such meetings and the Trustee is required to do so at the request in writing of Stockholders or Depositors holding not less than 10% of the nominal amount of the Stock or Deposits. The powers which are exercisable by an Extraordinary Resolution are set out in paragraph 15.1 of the second schedule of the Trust Deed. Most of these matters can be authorised by such a resolution of Stockholders above. On a resolution, the vote of a majority at a duly convened meeting with the necessary quorum binds all Stockholders or Depositors. The required majority for passing an Extraordinary Resolution is not less than three-fourths of the persons at a duly convened meeting voting in favour or on a poll by a majority consisting of not less than three-fourths of the votes given. INSPECTION OF THE TRUST DEED The above is not intended to be a summary of the terms and conditions of the Trust Deed but an indication of some of the principal covenants of the Company and Charging Subsidiaries. Certain words beginning with a capital letter are defined or described in the Trust Deed, copies of which are available and may be inspected during business hours at the office of HC Partners Limited, Chartered Accountants, 39 George Street, Timaru, or at the office of the Company, 19 Sophia Street, Timaru, or at the Wellington office of the Trustee, or viewed on the Companies Office website at www.companies.govt.nz. Copies of the Trust Deed may also be obtained (possibly on payment of a fee) by telephoning the Companies Office Contact Centre on 0508 266 726.

 

 

 

42

TRUSTEE’S STATEMENT [Drafting Note: Insert letterhead of Trustees Executors] [●] October 2009 The Directors South Canterbury Finance Limited 39 George Street PO Box 125 TIMARU Dear Sirs Re: Prospectus No. 60 Clause 13(3) of the Second Schedule to the Securities Regulations 1983 requires us to confirm that the offer of securities ("the Securities") set out in this Prospectus complies with any relevant provisions of the Trust Deed dated 12th April 1976, as amended to date (the “Trust Deed”). These provisions are those which: (i)

entitle South Canterbury Finance Limited to constitute and issue under or with the benefit of the Trust Deed (as the case may be) the Securities offered in the Prospectus; and

(ii)

impose restrictions on the right of South Canterbury Finance Limited to offer the Securities,

and are described in the summary of the Trust Deed in the Prospectus. The Auditors have reported on the financial information set out in the Prospectus and our statement does not refer to that information or to any other material in the Prospectus which does not relate to the Trust Deed. We confirm that the offer of the Securities set out in the Prospectus complies with the relevant provisions of the Trust Deed. We have given the above confirmation on the basis: (a)

set out above; and

(b)

that, subject to the duties imposed on the Trustee by the Fifth Schedule of the Securities Regulations 1983, the Trustee relies on the information supplied to it by South Canterbury Finance Limited pursuant to the Trust Deed and does not carry out an independent check of that information.

Trustees Executors Limited does not guarantee the repayment of the Securities or the payment of interest thereon. Signed for and on behalf of Trustees Executors Limited [Drafting Note: Insert name and position of signatory].

 

 

 

43

SOUTH CANTERBURY FINANCE AND CHARGING SUBSIDIARIES FINANCIAL INFORMATION

 

 

 

44

AUDITOR’S REPORT

72   

BRIEF HISTORY OF THE COMPANY South Canterbury Finance, one of New Zealand’s largest privately owned finance companies, has operated continuously since 1926 when it started trading as South Canterbury Loan & Finance Company. Prior to the year ended 30 June 2009, South Canterbury Finance had (with the exception of the 1933 and 1934 depression years) traded profitably and paid dividends throughout its history. The present owners have held an interest in the Company since the late 1950’s. Over the past decade, South Canterbury Finance has expanded by promoting and acquiring ownership of Auckland Finance Ltd, Waikato Finance Ltd, Palmerston North Finance Ltd, Wellington Finance Ltd, Tasman Bay Finance Ltd, Canterbury Finance Ltd, Ashburton Finance Ltd, Otago Finance Ltd and Southland Finance Ltd (the regional finance companies), Belfast Park Ltd, Braebrook Properties Ltd, Fairfield Finance Ltd, Flexi Lease Ltd, Galway Park Ltd, Helicopter Nominees Ltd, Hornchurch Ltd, SCFG Systems Ltd, Southbury Insurance Ltd, Tyrone Investments Ltd. The Company also has a 75% holding in Face Finance Ltd and Kelt Finance Ltd and a 50% holding in Financial Synergy Ltd. On 1 October 2008, South Canterbury Finance and the above regional finance companies amalgamated. The regional company office names have now been replaced with South Canterbury Finance. The change was introduced to bring administrative benefits to the Company, provide a stronger single brand across the country and facilitate expansion. New offices have also been opened in the Bay of Plenty and in Wanganui.

73