Concern, confidence mix follows fall

06-09-2010 | Annette Scott

As the web of Allan Hubbard companies unravels it is becoming increasingly clear that many punters heard the name Hubbard and immediately made the connection to South Canterbury Finance (SCF).

The New Zealand Farmers Weekly last week identified few farmers who actually had funding involvement directly with SCF, despite a public perception that it has been dairy farmer lending that brought the country's second largest finance institution to its knees.

For sure, there are millions of dollars of "Hubbard company" money in the rural and agricultural arena of not only South and Mid Canterbury, but also wider South Island and into the North Island.

The alarming realities of this lending is yet to be fully revealed from the Serious Fraud Office investigation as part of the imposed statutory management of Hubbard, his wife Margaret (Jean) and their companies Aorangi Securities and Hubbard Management Funds (HMF) and associated charities.

As the forensic accounting of these affairs continues there are an increasing number of farmers "trembling in their gummies" as it appears this is where the greatest impact will be on loans associated with the "coalface" farmer, depending of course on the result of the SFO investigation.

Sadly the statutory managers' interim reports into Aorangi and HMF have been less than encouraging, revealing some disturbing information with more nasty shocks expected.

Suggestion has it that the Hubbard-controlled Southbury Group, a major shareholder in SCF with a large shareholding in Dairy Holdings Ltd, has been the likely source of the $700 million in bad loans that have been referred to in recent months.

Farmers Weekly understands one charitable trust, Te Tua, had $24 million advanced by Aorangi at an interest rate of 10% when the majority of Te Tua loans were interest free, many to farmers and sharemilkers as a "helping hand" repayable over five to seven years with an initial repayment holiday.

On a positive note there are 35,000 people about to get a dollop of cash far sooner than they were anticipating and this expected to significantly liven up the South Canterbury economy, at least meantime.

Farming leaders and agricultural service providers expressed a mix of concern and confidence following of the fall of SCF.

South Canterbury Federated Farmers president William Rolleston was confident there would not be a large scale sell up of farms given the government's quick action to combat a major disruption of the economy.

Having said that, Rolleston was concerned about the gap that may be left in terms of revolving and seasonal finance with SCF having been quite involved in that area for the agricultural sector.

"This has been a major blow to morale in this part of the world. The role of SCF and Allan Hubbard in particular, has been very important as a second tier lender to get projects over the line."

Rolleston said there was confidence in the farming sector.

"This may just be another case of farming demonstrating it is underpinning economic value to this country."

In a news statement a comment from SCF chief executive Sandy Maier supported Rolleston view.

"While there has been some exposure to the dairy sector, property had been the key in SCF's downfall, particularly from 2005-2008," Maier reported.

The man with decades of corporate turnaround under his belt, suggested the board, Hubbard, and management had made poor decisions with $700 million of bad loans, amid the warning signs that should have been heeded.

New Zealand Rural Contractors Federation vice president Rob McCarthy said it was the unknown going forward that was the concern for contractors.

"Nothing is going to happen overnight but we need to be looking to the future with some caution."

McCarthy said while there would be contractors caught up with loans in SCF it was a different scenario for contractors than for farmers. Contractors tended to have a five year succession plan with their equipment and that timeframe would fit with the suggestion of the three to four year plan talked about for the receiver to do his work.

"In our industry we are looking at short term loans paying the capital back each year on the life expectancy of the machine."

McCarthy said contractors were wary but it would be business as usual however with a lot more caution, particularly with "farmers jumping the fence", as they wait for more to unravel yet.

"In a nutshell - the government has stepped in and the reality is we have a bit more security today than yesterday and contractors prepared themselves earlier than yesterday for what has happened," McCarthy said.

Transport companies are also treading with caution.

"Personally I have no financial involvement with SCF for any of my companies, Mid Canterbury-based transport operator Philip Wareing said.

"We are mindful of how we could be affected and we are working now to do the best we can so as not to get into positions of debt recovery with clients."

Peter McCauley managing director of South Canterbury-based Hilton Haulage said it would be fair to say the fall of SCF would impact on all in the region and wider South Island, "including ourselves".

McCauley cited confidence as the biggest challenge.

"We won't be making 50/50 calls, we will be looking at 90/10, and erring to the 90 if there is any doubt at all."

He was "cautiously optimistic" that the community would survive.

"We will get through and still have the singlet on our back, some may lose the shirt but, in the end everyone will have a singlet."

Alloway stepping down

Allied Farmers announced on Friday that its managing director, Rob Alloway, was to step down from his current role in December this year. Alloway will remain on the board of Allied Farmers and its subsidiaries in the meantime.

Alloway has given notice to the board to allow a timely search for a new chief executive and a measured handover of the business.

Alloway said "the time was right to step down from the hands-on, day-to-day role of running the business as the restructuring process which began about a year ago was nearing completion".

"With the restructuring process now coming to an end, and several asset realisations likely in the short term, the company will be in a different position in December when I step down," he said

"My key goal was to establish a more stable financial platform and normalise the company's banking and other commercial arrangements."

` "We are expecting this process will be completed in the next few weeks leaving the business with substantially reduced senior debt and feel it is right to now give the board time to identify a new chief executive to take the company forward after a challenging period."

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