Poisonous real estate deals brought down South Canterbury Finance. Just like the failed Bridgecorp, Strategic Finance, St Laurence and Hanover, the venom of property’s fast-declining fortunes caught SCF offguard and delivered the killer blow.
Bad real estate loans are largely responsible for destroying $6 billion of investors’ wealth in the other property financiers - at least until yesterday when South Canterbury lifted the tally to nearly $8 billion.
Despite its reputation for being a South Island-focused rural lender, SCF was exposed to what turned out to be particularly bad deals all over New Zealand, in Australia and even Fiji.
It was exposure about which the usually amiable chief executive Sandy Maier admitted he was worried sick.
He complained about property, admitting that type of lending was to his regret and said it was a diversion from the traditional core business of the once-conservative 84-year-old business which Allan Hubbard controlled via his Southbury Corp.
Maier not only had to deal with the bad dirt deals, but he also had to put out another fire: investors clamouring for their money back.
In April, he embarked on a roadshow to raise an astonishingly big lifeline of $1.25 billion which he desperately needed for SCF to survive. That was to meet a $1 billion wall of expiring maturities and at the time, SCF disclosed that property loans totalled a shocking $414.2 million as at June 30, 2009.
Maier admitted he was not confident that would be repaid and although he always refused to answer precisely where SCF’s money was loaned, his prospectus was more informative and more worrying.
That document, issued then withdrawn often as SCF’s credit rating slid, revealed that its single biggest loan was a huge $42.3 million “for a large commercial hotel refurbishment and redevelopment”.
That had people speculating that the money was lost on Auckland’s Hyatt hotel/apartment project, finished some years ago, a property with close South Canterbury links after Savoy developer Jihong Lu quit. Maier hosted investors at the Hyatt at his June roadshow.
John Dalzell, now at Sea+City, recalled being Savoy’s chief executive of property, working for Hudson which took over the project “but for the last 2years representing South Canterbury Finance’s interests in the Hyatt properties”.