New Zealand government considers action to save troubled lender

Aug 30, 2010, 9:58 GMT

Wellington - The New Zealand cabinet on Monday discussed the fate of one of the country's largest lenders, as Finance Minister Bill English cancelled a trip to South-East Asia to deal with the issue.

South Canterbury Finance Limited has been given until 5 pm Tuesday (0500 GMT) to find an injection of capital to honour outstanding obligations towards its 20,000 investors, failing which it faces receivership.

Prime Minister John Key refused to comment at a post-cabinet news conference on speculation that the government was preparing to bail out the company.

South Canterbury has not confirmed the exact amount needed, but financial commentators have put it at 500 million New Zealand dollars (355 million US dollars).

The company's latest accounts reveal the company is carrying just under 600 million New Zealand dollars of impaired loans on its balance sheet.

The prime minister said that it was 'entirely appropriate' that English, who was due to leave for Hong Kong and Singapore on Monday evening, should stay and deal with the issue.

Key also stressed that South Canterbury's investors, who have put a total of 1.7 billion New Zealand dollars into the company, would not lose their money.

They were protected by a government Retail Deposit Guarantee Scheme, he said, which was introduced after around 60 finance companies collapsed in the world economic crisis.

But he said the government was concerned about the impact of a South Canterbury's possible collapse on the economy and the potential cost to taxpayers.

The company either owns or finances many South Island dairy farms.

Dairying is New Zealand's biggest industry and Canterbury Finance has been a major player in the recent boom in the sector.

Agriculture analysts have warned that receivership would force distress sales of farms, slash South Island land prices and stunt the stumbling recovery from recession.

Key moved to downplay the risks to the dairy sector of New Zealand - the world's biggest exporter of milk products - but said the government had 'spent a long time thinking through our actions' if the worst should happen.

With 48 hours to go until the deadline, South Canterbury chief executive Sandy Maier said that after nine months of discussions the company was still talking to three parties about the investment it needed.

But in an earlier statement to the New Zealand Stock Exchange, he warned that there was no certainty of an agreement.

Russel Norman, co-leader of the Green Party in parliament, urged the government to take a stake in the troubled company to ensure that the farms it owned do not fall into foreign ownership.