South Canterbury offers loyalty bonus for longer-term investments

By Gareth Vaughan South Canterbury Finance, facing a wall of maturing debentures, has launched an advertising blitz to try and entice investors to extend the terms of their investments in the company. The beleaguered finance company has taken out newspaper advertisements that will run five days this week offering an annual 8% interest rate for investments after May 2011. The ads refer to a special offer to existing South Canterbury investors. An email obtained by interest.co.nz from South Canterbury general manager of funding Kevin Gloag to brokers says the company will write to existing investors with maturities between May and October this year, offering them an extra 0.25% per annum loyalty bonus if they agree to terminate existing investments early and reinvest on new, extended maturity terms. Gloag is due to leave the firm on May 12. "The basis of the offer will be they will receive their current rate until their current maturity (even though it is a new investment), plus 8% + 0.25% for the extended period if they agree to a new investment with maturity beyond May 2011," Gloag wrote. South Canterbury has been accepted into the Crown's Extended Retail Deposit Guarantee Scheme, which replaces the existing Crown Guarantee that runs out on October 12 this year. Running until December 31, 2011, the new scheme guarantees the payment of principal and interest on stock up to NZ$250,000 per eligible investor. This month South Canterbury issued a prospectus for the issue of up to NZ$1.2 billion worth of first ranking debenture stock that will be covered by the Crown Guarantee and NZ$50 million worth of unsecured deposits that won't be covered by the Crown Guarantee. Chief Executive Sandy Maier said South Canterbury's primary objective for the advertising campaign was refunding its book and going out through brokers and looking to roll over deposits that have not yet matured. Asked whether the 8% interest rate on offer may be lifted beyond 2011 Maier said it was impossible to say. "It all depends on the yield curve at the time. I wouldn't think that the same offer will be in the market for anywhere near that length of time. There'll be too much change between now and then. In fact it's hard to see whether that rate will last days, weeks, months." As of March 31 South Canterbury had borrowings of about NZ$461.1 million, including interest, due to be repaid by June 30 this year. On top of this the group has just over NZ$1 billion due for repayment before the extended guarantee scheme expires on December 31 next year. As this month's investment statement notes: "The Company will need to manage its liquidity position carefully over that period to ensure that it is in a position to repay those borrowings as and when they fall due." Meanwhile the prospectus shows South Canterbury had total borrowings of NZ$1.89 billion at December 31, 2009 with NZ$1.4 billion of this secured debentures. Of the group's total borrowings, NZ$1.87 billion were due within a year and the remaining NZ$14.7 million within two years. South Canterbury says its four week rolling average debenture reinvestment rate by value fell to 60.1% from 71.7% in the six months to June 30, 2009 and reinvestment rates continued to decline between June last year and March 31 this year. Gloag told brokers South Canterbury would send offers to investors with maturities in May, June and July this year first and then to investors with later maturities after that. Investors will be advised to contact their brokers or financial advisers with brokers and financial advisers receiving an annual 0.5% brokerage fee on the full new term of the investment. This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.